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Simple Interest Made Simple!

  • The formula for simple interest is I = Prt
  • In order to determine any of the variables (I, P, r, t) you only need the other 3
  • When you know three of the four values, here's how you calculate the unknown.
    • To find principal (P) P = I/rt
    • To find the interest rate (r) r = I/Pt
    • To find the period of time (t) t = I/Pr

    The easy way to remember the above is to look at it as Simple Interest - Triangular Forumlas

    IIIII
    Prt

    Think of I at the top of the triangle and Prt at the bottom. The formulas above are easy to remember when you keep the triangle in your mind as your visual.

    A word about time. When the time is 6 months. It will be entered a .6 If you have specific days such as 215 then you will divide the days by 365 which gives you .58 for time. Don't forget to count the days of the month properly - 30 days in September, April, June, November and except for Feb. all the rest have 31!

Now try a few: (answers below)

1. How much money do I need (principal) to get $18.20 at 3.25% in 8 mths.?
2. How many months will it take if I invest $5000.00 at 5% to make $136.48?
3. How many years will it take for $745.00 to make $178.80 at 8%?

Answers are below - scroll down......

 

Answers:

1. $840.00
2. 12 months
3. 3 Years

How to Calculate Simple Interest with a Spreadsheet (Excel).
Compound Interest Calculator.
Simple Debt Amortization - explained.

More Financial Math

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