### How to Calculate Simple Interest

#### Lesson Objective

In this lesson, we will see some examples on how to calculate simple interest...

#### About This Lesson

In this lesson, we will see some examples on using the simple interest formula to calculate simple interest. These examples will show:

- how we can calculate the interest when the principal, interest rate and loan duration (in year & month) are given.

(1st math video & 2nd math video) - how we can use the simple interest formula to find the interest rate, r (3rd math video)

The study tips and math video below will explain more.

### Study Tips

#### Tip #1

The formula for finding simple interest, I is given below:

Where:

- P is the principal (the amount of money borrowed)
- r is the interest rate (per year or per annum)
- t is the loan duration in years

The math videos below will show some examples on using this formula...

### Math Video

#### Video on calculating for I when P, r and t (in year) are given...

Sponsored Links

#### Math Video Transcript

PART 1

00:00:03.130

In this lesson, we will learn how to calculate simple interest, using some examples.

00:00:10.150

Consider a loan of $5000 with the interest rate of 3%, for 2 years. Calculate the simple interest.

00:00:20.170

Now, to calculate the interest, we can use the formula, I=Prt.

00:00:27.150

Now, since the principal is given as $5000, we can substitute P with 5000.

00:00:35.160

Similarly, since the interest rate is given as 3%, we can substitute r with 3%.

00:00:43.160

Here, note that, we must change 3% into a decimal, before using it for calculation.

00:00:51.170

To do so, we divide 3 with 100. This gives 0.03.

00:00:59.190

Let’s continue, since the loan duration is 2 years, we can substitute t with 2.

00:01:09.090

We can now calculate the interest.

00:01:12.170

0.03 multiply with 2 gives 0.06. 5000 multiply with 0.06, gives 300.

00:01:25.140

Hence, the interest I, is $300.

00:01:31.140

Alright, that is all for this example.

#### Video on calculating for I when P, r and t (in month) are given...

Sponsored Links

#### Math Video Transcript

PART 2

00:00:03.230

Consider a loan of $3000, with the interest rate of 5%, for the duration of 6 months. Calculate simple interest.

00:00:15.150

Now, to calculate the interest, we can use the formula, I=Prt.

00:00:23.070

Since the principal is given as $3000, we can substitute P with 3000.

00:00:30.070

Similarly, since the interest is given as 5%, we can substitute r with 5%. Note that, we have to convert this 5% into a decimal.

00:00:43.160

To do so, we divide 5 with 100. This gives 0.05.

00:00:53.240

Next, the loan duration is given as 6 months. Hence, we can substitute t with 6 months.

00:01:03.220

Note that, since the loan duration is always in 'year'. We must convert 6 months into year.

00:01:11.220

To do so, since 1 year has 12 months, we divide 6 with 12.

00:01:18.030

This gives 0.5 year. Now, we can start calculating the interest.

00:01:27.030

0.05 multiply with 0.5, gives 0.025.

00:01:34.100

3000 multiply with 0.025, gives 75.

00:01:41.040

Therefore, the get the interest I = $75.

00:01:47.140

That is all for this example.

#### Video on calculating for r when I, P and t are given...

Sponsored Links

#### Math Video Transcript

PART 3

00:00:03.020

Consider a loan with a principal of $2000, the loan duration is 4 years, and the interest after 4 years is $800. Find the loan's interest rate, r.

00:00:17.040

We start with the simple interest formula, I = Prt.

00:00:22.200

Since the interest is given as $800, we can substitute I with 800.

00:00:29.180

Similarly, since the principal is given as $2000, we can substitute P with 2000. Next, the loan duration is given as 4 years. Hence, we can substitute t, with 4.

00:00:47.010

We can simplify by multiplying 2000, with 4. This gives 8000.

00:00:55.030

Now we have, 8000r=800. Let's rewrite it here.

00:01:03.230

To find r, we need to remove 8000.

00:01:08.170

To do so, we divide both sides of the equation with 8000.

00:01:14.120

This gives, r equals to, 800/8000. 800 divided by, 8000 gives, 0.1.

00:01:27.120

Now, we have the interest rate as, r=0.1.

00:01:34.050

Now, rather than leaving the answer like this, it is better to change 0.1 to percent.

00:01:40.240

We can do so, by multiplying 0.1 with 100. This gives, 10%.

00:01:51.030

Hence, the interest rate for this loan is 10%.

00:01:56.240

That is all for this example.

### Practice Questions & More

#### Multiple Choice Questions (MCQ)

Now, let's try some MCQ questions to understand this lesson better.

You can start by going through the series of questions on calculate simple interest or pick your choice of question below.

- Question 1 on the using the simple interest formula
- Question 2 on using the maturity value formula

#### Site-Search and Q&A Library

Please feel free to visit the Q&A Library. You can read the Q&As listed in any of the available categories such as Algebra, Graphs, Exponents and more. Also, you can submit math question, share or give comments there.