How to Calculate Simple Interest on Investments

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How to Calculate Simple Interest on Investments

Simple interest is the interest which is earned on the original investment (the principal amount) for a specific number of years. Here are a few methods to calculate simple interest.

Method 1

Suppose the annual interest rate is 6% (0.06) on a $1000 investment for 3 years. Then

Interest for each year: $1000 x 0.06 = $60

Interest for 3 years: $60 x 3 = $180

Total amount after 3 years: $1180

Method 2

Second method is to use the simple interest calculation formula:

A = P (1 + rt)

where

A = Future value of the principal

P: Principal amount

r: Interest rate

t: Number of years

Suppose the interest rate is 5% on a $1000 debt taken for 5 years, then

P=$1000, r=0.05, t=5

A = P (1 + rt) = $1000 x (1 + (0.05 x 5))= $1000 x (1.25) = $1250

The future value will be $1250 after 5 years.

The simple interest will be $1250 - $1000 = $250

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