Simple Interest
In this topic, you will learn the concept of simple interest and how to apply it to solve real-world financial problems.
Simple interest is calculated based on the original amount of money, known as the principal, over a period of time at a fixed rate. You will become familiar with key terms such as principal, interest rate, and time, and understand how each of these affects the total interest earned or paid.
Related Lessons:
What Is Interest Rate?
Interest rate is the amount charge, from the lender to the borrower, express as a percentage of the principal (which is the initial amount).
When we deposit money into a bank, we are the lender, and the bank is the borrower, and the bank will pay us interest.
When we borrow money from a bank, example, to finance a home (loan), we are the borrower, and the bank is the lender, and we pay interest to the bank
Simple Interest Formula
The Simple Interest Formula is:
Interest (I) = PRT
- P is the principle is the amount deposited / loan
- I is the interest rate (in percentage) is usually quote base on per annum (per year)
- T is the time is usually quoted per year
Note that some schools use the formula:
\(Interest (I)=\frac{𝑃𝑅𝑇}{100}\)
Example 1
Jack deposited $2000 at an interest rate of 5% per annum Simple Interest for 3 years. How much interest does he earns?
Example 2
Phillips deposited $30,550 in a savings account at a rate of 0.64% per annum, and withdraw all the interest at the end of each year. Find the amount that Phillips has in the savings account after 5 years.
Example 3
Sarah deposited $5 000 at a bank which offers simple interest. After 2 years, she receives a sum total of $5300 including interest. Find the interest rate per annum.