Video:How to Calculate the Simple Interest When 3 Values Are Known

Transcript:How to Calculate the Simple Interest When 3 Values Are Known

Hi, I am Cheryal Loosmore with About.com. Today I will be showing you how to calculate Simple Interest when three other values are known.

What Is Simple Interest When 3 Values Are Known?

The interest is the amount charged by a lender for a loan. To calculate the interest when you know the principal, rate and time use the formula of I = Prt. P is for Principal, I is interst, r is rate and t is time.

Simple Interest When 3 Values Are Known

Let's try an example. Calculate the amount of interest on $4500 at 9.5% for 6 years. Before we can solve for I, we need to make sure all of the other factors are in the correct numeric format so they can be used in basic calculation. I is unknown. P, principal, equals 4500. R, equals 9.5%. We need to convert the percentage into a decimal for the calculation. We divide 9.5 by 100 which equals 0.095. If you have specific days such as 215 then you will divide the days by 365 days. If it is in years it does not need any conversion. In this example, T is 6 years so t = 6. I equals 4500 by 0.095 by 6. Which equals 2565.00. Interest is a dollar amount so add the dollar symbol back and I will equal $2565.00.

Calculate the amount of interest on $8700.00 when earning 3.25% per year for three years. P equals 8700. R equals 3.25% which we divide by 100 to get 0.0325. T equals 3. We can now solve for i by Multiply 8700 by 0.0325 by 3 which equals 848.25. The interest is $848.25.

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