Simple interest

To find the simple interest, use this formula: Interest = Principal × Rate of interest × Time


The principal is the amount of money you borrow or invest.

The rate of interest is the percent charged for the use of money

The time is the duration or the time the money is invested or borrowed in years. Exercises #1:

Compute the interest if the principal is 2000 dollars at a rate of interest of 5% for 4 years.

Using a calculator,

Interest = 2000 × 5% × 4 = 2000 × 0.05 × 4

Interest = 100 × 4 = 400

Exercises # 2

Compute the interest if the principal is 2,000,000 dollars at a rate of interest of 4% for a year

Using a calculator,

Interest = 2,000,000 × 4% × 1

Interest = 2,000,000 × 0.04 × 1

Interest = 80,000 × 1 = 80,000

If you have 2 millions dollars and your bank pay you 4% interest every year, you will earn 80,000 dollars every year.

Great, you can quit your day time job!

Exercises # 3

Compute the interest if the principal is 100 dollars at a rate of interest of 2% for 10 year

Using a calculator,

Interest = 100 × 2% × 10

Interest = 100 × 0.02 × 10

Interest = 2 × 10 = 20

With little money invested and low interest, 10 years investment gives you a mere 20 dollars

This might be a waste of time!

Take the simple interest quiz to see if you really understood this lesson. Some questions are tricky!