To calculate simple interest, you use the formula:
Simple Interest (SI)=P×R×T100\text{Simple Interest (SI)}=\frac{P\times R\times T}{100}Simple Interest (SI)=100P×R×T
where
- PPP = Principal amount (the original sum of money)
- RRR = Rate of interest per year (in percentage)
- TTT = Time period the money is borrowed or invested (in years)
This formula gives the interest earned or paid over the time period without compounding
Steps to Calculate Simple Interest
- Identify the principal amount PPP.
- Determine the annual interest rate RRR (as a percentage).
- Determine the time period TTT in years.
- Substitute these values into the formula SI=P×R×T100SI=\frac{P\times R\times T}{100}SI=100P×R×T.
- Calculate the product to find the simple interest.
Example
If you borrow $1,000 at an interest rate of 5% for 3 years, the simple interest is:
SI=1000×5×3100=150SI=\frac{1000\times 5\times 3}{100}=150SI=1001000×5×3=150
So, the interest accrued over 3 years is $150
Calculating Total Amount
The total amount to be paid back or received after interest is:
A=P+SI=P×(1+R×T100)A=P+SI=P\times \left(1+\frac{R\times T}{100}\right)A=P+SI=P×(1+100R×T)
or equivalently,
A=P(1+rt)A=P(1+rt)A=P(1+rt)
where r=R100r=\frac{R}{100}r=100R is the rate in decimal form
Calculating Simple Interest for Periods Other Than Years
- For months: Convert months to years by dividing by 12, then use the formula.
- For days: Convert days to years by dividing by 365, then use the formula
This method provides a straightforward way to calculate interest when the interest does not compound over time.
