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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