Simple Interest

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What is simple interest?

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Simple interest is a method of calculating the interest charge on a loan or financial product, where the interest is calculated only on the principal amount, or the initial amount of money, rather than on the interest that accumulates over time.

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What is the formula for calculating simple interest?

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The formula for calculating simple interest is: I = P * r * t, where I is the interest, P is the principal amount, r is the rate of interest (in decimal), and t is the time (in years).

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How do you convert a percentage to a decimal for calculations?

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To convert a percentage to a decimal, divide the percentage by 100. For example, 19% becomes 0.19.

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If a loan of $1,500 is taken at a rate of 19% for 15 months, how do you calculate the simple interest?

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First, convert 15 months to years (15/12 = 1.25 years). Then use the formula: I = P * r * t = 1500 * 0.19 * 1.25 = $356.25.

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What is the total amount to be paid back on a loan?

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The total amount to be paid back on a loan is the sum of the principal and the interest. It can be calculated as: Total Amount = Principal + Interest.

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How do you find the interest earned on a deposit?

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To find the interest earned on a deposit, use the simple interest formula: I = P * r * t, where P is the principal amount, r is the interest rate (in decimal), and t is the time in years.

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What is the interest earned on a deposit of $225 at a rate of 1.5% over 2 years?

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Using the formula: I = P * r * t = 225 * 0.015 * 2 = $6.75.

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How do you determine the interest rate from the total interest paid on a loan?

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To determine the interest rate, rearrange the simple interest formula: r = I / (P * t). Calculate using the total interest paid, principal, and time.

Front

If Kermit paid $1,870 in interest on a $5,500 loan over 4 years, what was his interest rate?

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Using the formula: r = I / (P * t) = 1870 / (5500 * 4) = 0.085 or 8.5%.

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What is the significance of the time period in calculating simple interest?

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The time period is crucial in calculating simple interest as it directly affects the amount of interest earned or paid. Interest is typically calculated on an annual basis.