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Chapter 8: Problem 39

Explain how to calculate simple interest.

Short Answer

Expert verified
The simple interest can be calculated using the formula \( I = P*R*T \), where I is the interest, P is the principal amount of money, R is the annual interest rate in decimal form, and T is the time the money is invested or borrowed for in years. For a principal of $500, an interest rate of 5%, and a time of 3 years, the interest would be \( I = 500*0.05*3 \) or $75.

Step by step solution

01

Identify the Variables Necessary

Identify and record the interest rate given (R), the principal amount of money (P), and the time the money is invested or borrowed for (T).
02

Convert the Interest Rate

If the interest rate is given as a percentage, convert it into decimal form by dividing by 100.
03

Insert Variables into the Formula

Substitute the values identified earlier into the simple interest formula, \( I = P*R*T \). For example, if you have a principal of $500 (P = 500), an interest rate of 5% (R = 0.05 after conversion), and a time of 3 years (T = 3), the next step will be substituting the values into the formula.
04

Calculate the Interest

Multiply the substituted values to calculate the interest (I). Continuing the example, the calculation will be \( I = 500*0.05*3 \).

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