To calculate simple interest, you use the formula:
Simple Interest=P×r×t\text{Simple Interest}=P\times r\times tSimple Interest=P×r×t
where:
- PPP = Principal (the original amount of money)
- rrr = Interest rate (expressed as a decimal)
- ttt = Time the money is invested or borrowed for, in years
For example, if you borrow $1,000 at an interest rate of 5% per year for 2 years, the simple interest would be:
1000×0.05×2=1001000\times 0.05\times 2=1001000×0.05×2=100
So, you would owe $100 in interest after 2 years. If you want to find the total amount to be paid (principal + interest), use the formula:
A=P×(1+r×t)A=P\times (1+r\times t)A=P×(1+r×t)
where AAA is the final amount after interest. This method calculates interest only on the principal amount, not on accumulated interest over time, which differentiates it from compound interest.
