Simple Interest (SI) Formula, Solved Example & Calculator
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simple interest calculator is an online interest calculation tool to calculate the time value of money to know how much interest will be earned or charged on a principal sum at certain interest rate for particular period of time. Unlike compound interest calculation, the principal sum remains constant and will not be changed due to interest through out the entire period for which the principal sum is borrowed. When money is borrowed or lended at simple interest, the interest will be charged on the original amount of money, and not on any interest that it has earned. The interest on principal remains same for every month or every year and it is calculated from the principal amount P, simple interest rate R in percentage per year and length of the time T in years. It's often abbreviated as SI and is the most basic type of interest.
Simple Interest Formula
The total amount payable or simple interest payable on a principal sum over the period of time can be calculated in the context of time value of money calculation from the below mathematical formula
Step by Step Calculation
The below step by step calculation may used to understand how to calculate simple interest (SI) by using the above formula
step 1: multiply the given principal sum P, interest rate R in percentage & time period in years together.
step 2: for yearly interest payable, divide the result of above multiplication (P x R x T) by 100 gives the simple interest.
step 3: divide the simple interest by 12 for 1 year or 24 months for 2 years and so on, provides the monthly payable interest amount.
Solved Example Problem
The below solved example problem may used to understand how the principal, rate of interest & time period are being used in the SI formula
Example Problem
Calculate the yearly & monthly simple interest payable for the principal sum 1000 USD borrowed at 6% of interest rate for the time period of 1 year.
Solution
simple interest payable for 1 year
SI = (P x R x T)/100
apply the values in the above formula
SI for year = (1000 x 6 x 1)/100
60 USD is the simple interest payable for 1 year
how to calculate how simple interest payable monthly
simple interest payable for 1 month
SI for month = (P x R x T)/(100 x T x 12)
apply the values in the above formula
= (1000 x 6 x 1)/(100 x 1 x 12)
= 5
5 USD is the simple interest payable for 1 month
By using this simple interest calculator users may calculate the SI in any unit of World currencies like USD, GBP, AUD, JPY, INR, NZD, CHF etc. To calculate the SI in the desired currency, select the currency from the world currencies drop down menu provided just above the calculator.
Simple interest is the basic interest calculation method to calculate the time value of money in the context of finance. The formulas, step by step calculation & solved example problem may used to understand & perform such calculation manually, however, when it comes to online for quick calculations, this simple interest calculator may helps the user to perform & verify such calculations as quick & easy as possible.