Simple Interest Calculator

What is Simple Interest?

Simple interest is a method of calculating interest where the interest is computed only on the principal amount. It does not take into account the accumulated interest over time, unlike compound interest. This method is commonly used for short-term loans or investments.

The Simple Interest Formula

The formula for calculating simple interest is:

\[I = P \times r \times t\]

Where:

• \(I\) = Interest earned
• \(P\) = Principal amount (initial investment or loan amount)
• \(r\) = Annual interest rate (in decimal form)
• \(t\) = Time period (in years)

Step-by-Step Simple Interest Calculation

1. Identify the principal amount (P), annual interest rate (r), and time period (t).
2. Convert the interest rate to decimal form (divide by 100).
3. Multiply P, r, and t together to get the interest (I).
4. Add the interest to the principal to get the total amount.

Example Calculation

Let's calculate the simple interest for a principal of $1,000, an annual interest rate of 5%, over 2 years:

1. \(P = \$1,000\), \(r = 5\% = 0.05\), \(t = 2\) years
2. \(I = 1000 \times 0.05 \times 2 = \$100\)
3. Total Amount = \$1,000 + \$100 = \$1,100

Visual Representation

The green portion represents the principal ($1000), and the blue portion represents the interest earned ($100).