simple interest formula
The simple interest formula is used to calculate the interest earned or paid on a principal amount for a certain period of time
The simple interest formula is used to calculate the interest earned or paid on a principal amount for a certain period of time. The formula is as follows:
Simple Interest = (Principal Amount) x (Interest Rate) x (Time)
Where:
– Principal Amount refers to the initial amount of money or the loan amount.
– Interest Rate is the percentage charged or earned on the principal amount.
– Time represents the duration of the loan or investment in terms of years.
To illustrate this formula, let’s consider an example:
Suppose you deposit $5000 in a savings account with an annual interest rate of 5% for a period of 3 years. To calculate the simple interest earned, you would use the formula:
Simple Interest = 5000 x 0.05 x 3
Simple Interest = $750
Hence, the simple interest on your initial deposit of $5000, at a rate of 5% per year, for a period of 3 years, would amount to $750.
Remember that this formula assumes the interest is calculated over a fixed time period and doesn’t account for compounding, which is the process of earning interest on previously earned interest.
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