Simple Interest

Important Words

Principal

The amount of money being loaned or borrowed.

Interest

The "price" for loaning or borrowing.

Rate

The percentage of the principal that will be used to calculate interest.

Term

How long the loan goes for.

per annum

"each year" (Latin).

Simple Interest

A specific way to calculate interest, based on the value of the principal alone.

Important Formulas

The following formulas use these variables:

• I is the interest;
• P is the principal (the original amount);
• F is the final amount;
• r is the interest rate (as a percent);
• t is the term.

To find the interest on an investment or loan:

(1)

\begin{align} I = \frac{P \times r \times t}{100} \end{align}

To find the final amount of an investment or loan:

(2)

\begin{align} F = P + I = P \times \left( 1 + \frac{r \times t}{100} \right) \end{align}

To find the interest rate of an investment or loan:

(3)

\begin{align} r = \frac{100 \times I}{P \times t} \end{align}

To find the time period of an investment or loan:

(4)

\begin{align} t = \frac{100 \times I}{P \times r} \end{align}

To find the principal of an investment or loan:

(5)

\begin{align} P = \frac{100 \times I}{r \times t} = \frac{F}{\left( 1 + \frac{r \times t}{100} \right)} \end{align}

References

Jones, et al. Essential Standard General Mathematics, Cambridge University Press, First Edition (2005), pp213-221.