How to Calculate Simple Interest

Step-by-Step Guide

1. 1

   Step 1: Find interest owed with formula I=Prt{\displaystyle I=Prt}.

   I={\displaystyle I=} Interest owed P={\displaystyle P=} Principal, or the initial sum borrowed r={\displaystyle r=} Interest rate written as a decimal t={\displaystyle t=} Number of time periods since loan began
2. 2

   Step 2: Find total amount owed.

   The borrower also has to pay back initial loan, so total amount owed is equal to I+P{\displaystyle I+P}.
   
   You can either add them together at the end, or combine them into one equation to get total amount A=P(1+rt){\displaystyle A=P(1+rt)}. , A bank lends you $55,000 at a simple annual interest rate of 3%.
   
   How much interest do you owe ten years later? P=$55,000{\displaystyle P=\$55,000} r=0.03/year{\displaystyle r=0.03/{\text{year}}} (To convert a percentage to a decimal, divide by
   100.
   
   For example, if you're given a rate of 3%, it becomes 3/100, or
   0.03) t=10 years{\displaystyle t=10\ {\text{years}}} I=Prt=($55,000)(0.03/year)(10 years)=$16,500{\displaystyle I=Prt=(\$55,000)(0.03/{\text{year}})(10\ {\text{years}})=\$16,500} Total amount owed=$55,000+$16,500=$71,500{\displaystyle {\text{Total amount owed}}=\$55,000+\$16,500=\$71,500} , Your friend borrows $70 and agrees to pay 5% simple interest every week.
   
   Two months later, how much does your friend owe? P=$70{\displaystyle P=\$70} r=0.05/ week{\displaystyle r=0.05/\ {\text{week}}} t=2 months×(4 weeks/month)=8 weeks{\displaystyle t=2\ {\text{months}}\times (4\ {\text{weeks}}/{\text{month}})=8\ {\text{weeks}}} (Interest is calculated per week in this problem, so we must count t in terms of weeks.) I=Prt=($70)(0.05/week)(8 weeks)=$28{\displaystyle I=Prt=(\$70)(0.05/{\text{week}})(8\ {\text{weeks}})=\$28} Total amount owed=I+P=$28+$70=$98{\displaystyle {\text{Total amount owed}}=I+P=\$28+\$70=\$98}
3. 3

   Step 3: Example A.

4. 4

   Step 4: Example B.

Detailed Guide

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