How Simple Interest Is Calculated - Answer

# How Simple Interest Is Calculated

How Simple Interest Is Calculated Simple interest is calculated using the formula:

Interest = Principal (P) × Rate (R) × Time (T)

### How Simple Interest Is Calculated

Where:

- Principal (P) is the initial amount of money.

- Rate (R) is the interest rate per period (usually expressed as a percentage).

- Time (T) is the duration for which the money is borrowed or invested, typically in years.

The formula calculates the interest amount accrued over a specific period, assuming the interest is not compounded. The total amount including the principal and interest can be found by adding the principal to the interest:

Total Amount = Principal + Interest

Here's an example to illustrate the calculation:

Let's say you borrow \$1,000 at an annual interest rate of 5% for a period of 2 years.

P = \$1,000

R = 5% (0.05 as a decimal)

T = 2 years

Using the formula:

Interest = \$1,000 × 0.05 × 2 = \$100

Therefore, the interest accrued over 2 years would be \$100. Adding the principal, the total amount to be repaid would be \$1,000 + \$100 = \$1,100.

Note that simple interest assumes that the interest remains the same throughout the entire duration and is not compounded. In real-world scenarios, interest may be compounded, which means it can be calculated based on both the principal and previously accrued interest.