**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.

**Examples of Simple Interest**

- The simple interest on $4,000 at 5% for 1 year is $200.
= 4,000 × × 1 = 200.

I = prt

**Solved Example on Simple Interest**

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 [Substitutep= 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.

**Related Terms for Simple Interest**

- Principal
- Rate of Interest

**Real-world Connections for Simple Interest**

- Simple Interest is a method of computing interest widely used for banking purposes.