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What is the Formula for Simple Interest?

Formula: Simple Interest

Summary

  1. I, p, r, and t are variables
  2. I represents the interest earned
  3. p represents the money originally invested
  4. r represents the interest rate
  5. t represents time in years
  6. I is our unknown
  7. p, the original investment, is 100
  8. r, the interest rate, is 5%
  9. Convert 5% to a decimal to get 0.05
  10. t, time, is 2 years
  11. Plug the values into the formula
  12. The amount of interest earned on $100 over 2 years was $10

Notes

    1. I, p, r, and t are the variables in the formula
    1. I, p, r, and t are the variables in the formula
    2. I represents the interest earned
    3. p represents the amount of money originally invested
    4. r represents the rate of interest (usually given as a percent)
    5. t represents the amount of time the interest accrued (measured in years)
    1. We want to know how much interest was earned
    2. The original investment was $100
    3. The interest rate was 5 percent
    4. The time was 2 years
    1. I, p, r, and t are the variables in the formula
    2. We need to figure out what I, p, r, and t are so we can use our formula
    1. I will be the variable we are solving for
    1. p=100, the original investment
    1. r=5%, the interest rate
    1. To convert a percent to a decimal:
    2. Drop the percent sign
    3. Then move the decimal point two places to the left
    4. So 5% becomes 0.05
    1. t=2, the number of years that passed
    1. Since we've identified p, r, and t in our problem, we can use the formula to solve for I, our unknown variable
    1. I is our unknown
    2. p=100
    3. r=0.05
    4. t=2
    1. 100•0.05•2=10
    2. Simplifying the right hand side, we find that I, our interest, is equal to 10