Simple interest is a way to calculate the interest charged or earned on a principal amount of money over time. It’s called "simple" because the interest is calculated only on the original principal, not on any interest that gets added over time (which would be compound interest).
The formula for simple interest is:
Where:
- P = Principal (initial amount of money)
- R = Rate of interest per year (in %)
- T = Time (in years)
Example:
If you borrow $1,000 at a 5% simple interest rate for 3 years:
So, the interest accrued is $150 over 3 years.
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