Simple Interest

Definition of Simple Interest

Simple interest is the interest calculated only on the principal regardless of the interest earned so far.
The formula for simple interest is I = prt where I is the simple interest, p is the principal, r is the rate of interest, and t is the period of time.

Video Examples: How To Solve Simple Interest Problems


Example of Simple Interest

    The simple interest on $4,000 at 5% for 1 year is $200. I = prt = 4,000 5/100 1 = 200.

Solved Example on Simple Interest

Ques: Find the simple interest for 2 years at a rate of 6% on $1,500.

    Choices:
    A. $285
    B. $180
    C. $105
    D. $240
    Correct Answer: B

Solution:

    Step 1: Simple Interest = prt [Formula for simple interest.]
    Step 2: = 1500 0.06 2 [Substitute p = 1500, r = 0.06, t = 2. Use 0.06 for 6%.]
    Step 3: = $180 [Simplify.]
    Step 4: The simple interest on $1500 for 2 years is $180.