What is Simple Interest?

• Simple interest is a way to calculate how much money you earn or owe based on a loan or investment.
• It is calculated using the initial amount of money (called the principal), the interest rate, and the time period.

Formula for Simple Interest: The formula to calculate simple interest is:

Simple Interest (SI)=(P×R×T/100)

Where:

• SI = Simple Interest
• P = Principal amount (the initial amount of money)
• R = Annual interest rate (as a percentage)
• T = Time period (in years)

How to Calculate:

1. Identify the Principal Amount (P): This is how much money you start with.
2. Determine the Interest Rate (R): This is usually given as a percentage. For example, 5% means you earn or pay 5 cents for every dollar each year.
3. Find the Time Period (T): This is how long you will keep the money in the bank or how long you will borrow it. This is measured in years.
4. Plug the values into the formula: Use the formula to calculate the simple interest.

Final Amount:

• To find out how much money you will have at the end of the investment or loan period, add the simple interest to the principal: $$+SI$$

Key Points to Remember:

• Simple interest is straightforward: It is easier to calculate than compound interest, which involves earning interest on interest.
• Used in loans: Many loans, like personal loans or car loans, use simple interest.
• Not affected by compounding: Simple interest does not change based on how often the interest is calculated, which is a key difference from compound interest.

When to Use Simple Interest:

• Use simple interest for short-term loans or investments where you want a clear idea of how much you will earn or owe.

By understanding these basic points about simple interest, you can make informed decisions about saving, investing, or borrowing money.