Simple interest is a straightforward way to calculate interest on a loan or investment. It is based on the original principal amount, the interest rate, and the time period. This guide will walk you through the steps to calculate simple interest.
Step 1: Understand the Simple Interest Formula
The formula for simple interest is:
SI = P × R × TWhere:
- SI = Simple Interest
- P = Principal (Initial Amount)
- R = Interest Rate (as a decimal or percentage per year)
- T = Time (in years)
Step 2: Identify the Given Values
Before calculating, determine the values for principal, interest rate, and time. For example:
- Principal (P) = $1,000
- Interest Rate (R) = 5% per year (or 0.05 in decimal form)
- Time (T) = 3 years
Step 3: Plug the Values into the Formula
Using the example above:
SI = 1,000 × 0.05 × 3SI = 150Step 4: Interpret the Result
The simple interest earned over 3 years is $150.
Step 5: Calculate the Total Amount (If Needed)
To find the total amount (Principal + Interest):
Total Amount = P + SITotal Amount = 1,000 + 150 = 1,150The total amount after 3 years is $1,150.