When money is borrowed or lent, the borrower usually pays the lender for the service. The amount charged is usually called interest. There are two common methods of calculating this interest and compound interest.
Simple interest is usually calculated as a percentage of the amount borrowed (the principal).
Equation:
I = PRT / 100
I = interest
P = principle (initial $)
R = rate ("rate per annum")
T = time in years
Example:
You earned 36.50 CD (Canadian Dollars) on 525 investment after 3.5 years.
What is the interest rate?
1) I = PRT / 100
2) (100) I = PRT (100) / 100
3) 100 I / (PT) = PRT / (PT)
4) 100 I / PT = R
5) Fill in equation:
(100)(36.50 CD) / (525 initial CD)(3.5 years) = Rate
6) 1.9% = Rate
4% for 3 years. Invest 700 United States Dollars (USD).
What is the interest?
I = (700 USD initially)(4% rate)(3 years) / (100)
I = 84 USD
