Simple interest

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Simple interest is a method for calculating the amount of interest charged on a sum over a set period of time at a set rate.

Interest formula

P = Principal (the amount that was initially borrowed from the bank or invested);

R = Rate of Interest in % per annum;

T = Time, usually calculated as the number of years;

The rate of interest is in percentage r% and is to be written as r/100.

Example 1:

How much simple interest will Maria pay if she borrows $46,500 for a term of 21 months at a rate of 20 %/year?

Solution:

The principal amount is $46,500, and the interest rate is 20% (20/100). The specified time span is 21 months, which equals 21/12 years. Using the interest formula, I = P R T. I = 46500 20/100 21/12, which is $16800.

Answer: Maria will pay $16,800.

Example 2:

$500 is lent for two years at a simple interest rate of 4%. Calculate the interest earned.

Solution:

So, we have such values:

Time is 2 years: t = 2

The initial amount is $500: P = 500

The rate is 4%: r = 0.04

Now, we should apply the formula:

S.I. = P x r x t

S.I. = 500 x 0.04 x 2 = 40

Answer: The interest earned is $40.