What you’ll learn
Solve simple interest problems.
Key idea
Use I = Prt, where P is the amount invested or borrowed, r is the annual rate as a decimal, and t is time in years. Check that the rate period and time units agree; an annual rate requires time in years.
The formula gives the interest, not the final balance. Add I to P if asked for the total after the period. This is different from compound interest, where earned interest is also added to the balance used in later calculations.
Worked example
Enter the exact value or ordered values in the format requested below.
Principal $100 earns 4% annual simple interest for 5 years, no compounding. Enter interest earned alone as a dollar number.
- With simple interest, the annual amount stays 100×4/100=$4 on the unchanged principal.
- For 5 years, I=P×r/100×t=100×4/100×5=$20; no compounding occurs.
Answer: 20
Quick Check
Evaluate a worked attempt at solve simple interest problems, identify the first invalid step, and provide the correction.
Principal $100, annual simple rate 11%, duration 2 years. Step 1, annual fraction=11/100. Step 2, total interest=100×11/100=$11, ignoring years. Locate the first invalid step and correct total interest.