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SIMPLE INTEREST by Mind Map: SIMPLE INTEREST

1. Simple interest is a quick and easy method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments.

2. Simple Interest Formulas and Calculations: Use this simple interest calculator to find A, the Final Investment Value, using the simple interest formula: A = P(1 + rt) where P is the Principal amount of money to be invested at an Interest Rate R% per period for t Number of Time Periods. Where r is in decimal form; r=R/100; r and t are in the same units of time. The accrued amount of an investment is the original principal P plus the accumulated simple interest, I = Prt, therefore we have: A = P + I = P + (Prt), and finally A = P(1 + rt) Calculate Total Amount Accrued (Principal + Interest), solve for A A = P(1 + rt) Calculate Principal Amount, solve for P P = A / (1 + rt) Calculate rate of interest in decimal, solve for r r = (1/t)(A/P - 1) Calculate rate of interest in percent R = r * 100 Calculate time, solve for t t = (1/r)(A/P - 1)

2.1. Example

2.2. A 2-year loan of $500 is made with 4% simple interest. Find the interest earned.

2.3. Solution

2.4. Always take a moment to identify the values given in the problem. Here we are given:

2.5. Time is 2 years: t=2

2.6. Initial amount is $500: P=500

2.7. Now apply the formula:

2.7.1. The rate is 4%. Write this as a decimal: r=0.04

2.8. I=Prt=500(0.04)(2)=40

2.9. Answer: The interest earned is $40.