Simple Interest

Front

What is Simple Interest?

Back

Simple Interest is a method of calculating the interest charge on a loan or financial product. It is calculated using the formula: Interest = Principal × Rate × Time.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 8.8% becomes 0.088.

Front

What is the formula for calculating Simple Interest?

Back

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 (as a decimal), and t is the time in years.

Front

If you have a principal of $1,200 and an interest rate of 8% for 2 years, how much interest do you earn?

Back

Interest = 1200 × 0.08 × 2 = $192.

Front

What is the total amount to be paid back if you borrow $1,200 at 8% interest for 2 years?

Back

Total Amount = Principal + Interest = $1,200 + $192 = $1,392.

Front

What is the principal in a Simple Interest calculation?

Back

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

Front

What does 'rate' refer to in Simple Interest?

Back

The 'rate' refers to the percentage of interest charged or earned on the principal amount, usually expressed as an annual rate.

Front

How long is the time period in Simple Interest calculations typically measured?

Back

The time period in Simple Interest calculations is typically measured in years.

Front

If Allison inherits $50,000 at a 7% interest rate, how much interest will she earn by age 21 if she is currently 12?

Back

Interest = 50000 × 0.07 × 9 = $31,500.

Front

What is the total amount Allison will have at age 21 from her inheritance?

Back

Total Amount = Principal + Interest = $50,000 + $31,500 = $81,500.