Simple Interest
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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. $285B. $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.
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