Simple Interest
Simple Interest
\[I = P r t\]
Variables
I = simple interest
P = principal amount
r = interest rate
t = time period
Description
What is this formula?
The simple interest formula calculates the interest earned or paid on a principal amount over a fixed period using a constant interest rate.
When to use it
Use this formula when interest is not compounded and is calculated only on the original principal amount.
Example
If a principal of 1000 USD is invested at an annual interest rate of 5% for 3 years, the simple interest is:
I = 1000 × 0.05 × 3 = 150 USD
Applications
Bank loans, short-term investments, educational finance calculations, and basic financial analysis.
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