Simple Interest

Front

What is simple interest?

Back

Simple interest is a method of calculating the interest charge on a loan or financial product based on the original principal amount and a fixed interest rate over a specified period of time.

Front

How is simple interest calculated?

Back

Simple interest is calculated using the formula: I = P * r * t, where I is the interest, P is the principal amount, r is the annual interest rate (in decimal), and t is the time in years.

Front

What is the formula for calculating the total amount paid on a loan with simple interest?

Back

The total amount paid (A) can be calculated using the formula: A = P + I, where I is the simple interest calculated using I = P * r * t.

Front

If a loan of $10,000 is taken at a simple interest rate of 5% for 3 years, what is the interest earned?

Back

The interest earned is $1,500, calculated as I = 10000 * 0.05 * 3.

Front

What is the principal amount in a simple interest calculation?

Back

The principal amount is the initial sum of money borrowed or invested, before any interest is added.

Front

How does the time period affect simple interest calculations?

Back

The longer the time period, the more interest will accumulate, as interest is calculated based on the principal amount over time.

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest that has already been added.

Front

If a person pays $2,000 in interest on a loan of $20,000 over 4 years, what is the simple interest rate?

Back

The simple interest rate is 2.5%, calculated using the formula r = I / (P * t) = 2000 / (20000 * 4).

Front

What is the impact of a higher interest rate on the total amount paid on a loan?

Back

A higher interest rate increases the total amount of interest paid over the life of the loan, resulting in a higher total amount paid.

Front

How can you determine the total interest earned from a savings account with simple interest?

Back

You can determine the total interest earned by using the formula I = P * r * t, where P is the initial deposit, r is the interest rate, and t is the time in years.