Simple interest is the calculation of additional earnings on an initial amount of money. It applies to loans, investments, and savings accounts.
Interest is calculated on the principal amount and is paid or earned over a specific period. Unlike compound interest, which is reinvested, simple interest is calculated solely on the original amount.
For example, if you have a loan with a simple interest rate of 5% per year and you owe $1000, you will pay $50 in interest each year. It’s a fundamental concept used in everyday financial transactions.
Interest = Principal amount x Interest rate x Time
Interest = $1000 x 0.05 x 1
Interest = $50
