Video:How to Calculate Simple Interest

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Transcript:How to Calculate Simple Interest

Basic Calculation of Simple Interest

This is the most basic of the interest calculations.

Here's how it's calculated:

1.Principal X Rate X Time = Interest Amount

Principal is the amount upon which interest is being earned, rate is the interest rate in percent or decimal form and time is the time upon which interest is being earned. For Example: If one hundred thousand dollars is the Principal at the rate of eight percent a year, it will be eight hundred thousand dollars interest.

$100,000(Principal) X 0.08(8% Rate) X 1 Year (Time) = $8000 Interest

2.Principal X {1 + (Rate X Time)} = Total Amount

All we're doing here is getting the total amount in hand at the end of the interest bearing period. In this first calculation, it's for one year, at the end of which, we'll have the original $100,000 + Interest.

$100,000 X {1 + (.08 X 1)} = $100,000 X 1.08 = $108,000

3.Let's Do That Again for Three Years:

Here we'll multiply the .08 (8%) rate times 3 years to equal .24.

$100,000 X {1 + .24} = $124,000

Supplies for Calculating Simple Interest

Things you need: Nothing but your pencil or a calculator.

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