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 after applying simple interest?

Back

The total amount A after applying simple interest can be calculated using the formula: A = P + I, or A = P * (1 + 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 paid?

Back

The interest paid is calculated as I = P * r * t = 10,000 * 0.05 * 3 = $1,500.

Front

What is the principal in the context of simple interest?

Back

The principal is the initial amount of money that is either invested or borrowed before any interest is applied.

Front

How does the time period affect simple interest calculations?

Back

The time period directly affects the amount of interest earned or paid; the longer the time period, the more interest will accumulate.

Front

What is the significance of the interest rate in simple interest calculations?

Back

The interest rate determines how much interest will be charged or earned on the principal amount over a specified time period.

Front

If you invest $2,000 at a simple interest rate of 4% for 5 years, what will be the total amount at the end?

Back

Total amount A = P + I = 2,000 + (2,000 * 0.04 * 5) = 2,000 + 400 = $2,400.

Front

What happens to the total amount if the interest rate increases?

Back

If the interest rate increases, the total amount of interest earned or paid will also increase, leading to a higher total amount.

Front

Can simple interest be compounded?

Back

No, simple interest is not compounded; it is calculated only on the principal amount, not on any interest that has previously been added.