Introduction:

Simple interest is a straightforward way of calculating the interest charge on a loan or the return on an investment. It is based solely on the original principal amount and does not consider compound interest.



Understanding Simple Interest:



Simple interest is calculated on the principal, or the original sum of money borrowed or invested.

It is computed over a specific period, often in terms of years.

Formula for Calculating Simple Interest:



The simple interest is calculated using the formula: Interest = Principal × Rate × Time, where:

The Principal is the initial amount of the loan or investment.

The Rate is the interest rate per period (usually per year).

The Time is the duration for which the money is borrowed or invested, typically in years.

Example:



If you invest $1,000 at an annual simple interest rate of 5% for 3 years:

Calculate the interest as follows: $1,000 × 5% × 3 = $150.

So, the interest earned over 3 years is $150.

Key Points to Remember:



Simple interest is straightforward and does not compound over time.

It is a useful concept for short-term loans or investments.

Practical Applications:



Simple interest is commonly used in personal finance, short-term loans, and some types of investments.