# Simple Interest Calculation

Simple interest is commonly used in personal loans, savings accounts, fixed deposits, and other financial transactions that involve a fixed interest rate.

Formula used:S.I. = (P × R × T)/100S.I. = Simple Interest P = Principal R = Rate of Interest in % per annum T = TimeTotal amount you will have to repay:Total Amount (A) = Principal (P) + Interest (S.I.)Direct formula for calculating the total amount:A = P(1 + RT)A = Total amount you will repay by the end of the specified time period. P = Principal R = Rate of Interest in % per annum T = Time

Formula used:Calculate S.I. for a specific number of months:Simple Interest for n months = (P × n × R) / (12 × 100)

In the real world, when you borrow money, it's important to remember that it comes with additional costs. The person or company that lends you the money, like a bank or finance company, expects you to repay more than the original amount.

This extra amount is determined by something called the interest rate, which can be calculated in different ways (simple interest or compound interest).

In this module, we'll focus on a simpler method called simple interest, while compound interest will be covered in the next module.

Now, let's move on to understanding how to calculate simple interest.

Now, let's talk about the key players in borrowing. The person or company that borrows the money is known as the borrower or debtor. They receive the funds and agree to pay back the borrowed amount, usually with some interest, within a specific timeframe.

On the other side, the person or company that gives the money to the borrower is called the lender or creditor. They trust the borrower with their funds and expect to be repaid according to the agreed-upon terms.

To sum it up, the borrower is the one who receives the money, and the lender is the one who provides it.

## Simple Interest rate Examples

**Question 1:**

John borrowed $2,000 from a bank at an annual simple interest rate of 5%. He paid back the loan amount with interest after 3 years. Calculate the total amount he repaid.

**Solution:**

Given:

Principal (P) = $2,000

Rate (R) = 5% = 0.05 (as a decimal)

Time (T) = 3 years

Simple Interest (SI) = P * R * T

SI = 2000 * 0.05 * 3 = $300

Total amount repaid = Principal + Simple Interest

Total amount repaid = $2,000 + $300 = $2,300

Therefore, John repaid a total of $2,300.

**Question 2:**

A sum of $5,000 was invested in a savings account at a simple interest rate of 4.5% per annum. How much interest will be earned after 2 years?

**Solution:**

Given:

Principal (P) = $5,000

Rate (R) = 4.5% = 0.045 (as a decimal)

Time (T) = 2 years

Simple Interest (SI) = P * R * T

SI = 5000 * 0.045 * 2 = $450

Therefore, the interest earned after 2 years will be $450.

**Question 3:**

A loan of $10,000 was taken from a bank at an annual simple interest rate of 8%. If the borrower repaid a total of $12,000 at the end of 3 years, what is the amount of interest paid?

**Solution:**

Given:

Principal (P) = $10,000

Total amount repaid = $12,000

Time (T) = 3 years

Total Interest Paid = Total amount repaid - Principal

Total Interest Paid = $12,000 - $10,000 = $2,000

Therefore, the amount of interest paid is $2,000.