Simple Interest and Consistent Time Units

Overview

Simple interest is calculated on the original principal for the stated time. With a fixed rate and unchanged principal, equal time intervals add equal amounts of interest. This differs from compound interest, where previously added interest can also earn interest.

The units of the rate and time must match. An annual percentage rate requires time expressed in years; eighteen months is one and a half years. The interest is the extra amount earned or paid, while the final amount is the principal plus that interest.

The tutorial uses an idealised simple-interest model without fees or taxes. Real financial products may use different day-count rules, compounding, charges or other terms, so first identify the model stated in a mathematics problem before applying the formula.

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• Calculate Simple Interest

  Calculate interest and final amount using an unchanged principal, a stated rate, and time measured in matching units.