To solve I = prt, multiply the amount of money borrowed by the interest rate and length of time. These are designated by the variables p for the principal or the amount of money borrowed, r for the interest rate and t for the length of time; I = prt is the formula for simple interest.
Continue ReadingThe fundamentals behind simple interest assume that the same amount of interest is paid every year on a debt, until the debt is paid off. For example, Stephen has a car loan of $30,000 for 5 years with a 3 percent interest rate. Using the formula for simple interest, the equation appears as I = 30,000 x .03 x 5.
It is important to remember to designate the percentage as a decimal. In this case, 3 percent is represented as .03. The answer to the above equation is 4,500. This means that Stephen will pay $4,500 in simple interest over the course of 5 years.
Another example of the formula for simple interest is a $2,000 loan with a 10 percent interest rate over the course of 7 years. This would be expressed as I = 2,000 x .10 x 7, which equals an amount of $1,400 in simple interest.
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