Simple Interest

There are several ways in which interest is calculated and paid. The simplest of the methods used is called simple interest.

The formula for this is \[S=P\times \mathit{r}\times \mathit{t}\:\Longrightarrow {Formula}\:\mathit{1}\]


\[S = Simple\: Interest\] \[P = Principle\: /Present\: Value\] \[\mathit{ r}\ = Interest\: rate\] \[\mathit{t}\ = period\]

Let us consider an example of an investment on simple interest terms of $1000 invested for 3 years at 10% per annum (p.a.).

Using Formula 1 and substituting the values,

\begin{equation} \label{eq1}
S & =\mathit{ 1000}\times \mathit{0.1}\times \mathit{3}\\
& = \mathit{300}

The simple interest after 3 years is $300.

Thus the total you will have after 3 years if you have invested $1000 with a 10% interest/return rate id $1300, which is the principal plus interest .

We can write this as

F = P + S

F = P +Prt

F= P(1 +rt)

Where F is the Future Value of an investment.