Simple Interest Formula

Simple Interest Formula

Simple Interest:

I = Prt

The simple interest formula is used to calculate interest on an investment. You multiply the principal, interest rate and time.

P = Principal, which is your initial amount

r = interest rate as a decimal

t = time in years

Example 1 :

Calculate the interest of an investment with a principal of $3,000 at 5% for 3 years.

Step 1:

Find the variables.

I = what we want to find

P = $3,000 which is the principal

R = .05 which is 5% as a decimal

T = 3 since it is 3 years

Step 2:

Substitute variable into the equation.

I = (3000)(.05)(3)

Step 3:

Multiply.

I =450

Answer:

The investment earns $450 in interest.

Example 2 :

Calculate the interest and future value of an investment that is initially $8,500 at 3.5% for 6 years.

Step 1:

Find the variables.

I = what we want to find

P = $8,500 which is the principal

R = .035 which is 3.5% as a decimal

T = 6 since it is 6 years

Step 2:

Substitute variable into the equation.

I = (8500)(.035)(6)

Step 3:

Multiply.

I = 1785

Answer:

The investment earns $1785.00. The future value is $10,825.00. We find this by adding the interest to the principal.

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