How to calculate simple interest formula

Simple interest calculation formula.

The simple interest amount is equal to the principal amount times the annual interest rate divided by the number of periods per year m, times the number of periods n:

simple interest amount = principal amount × (rate / m) × n

Example

Calculate the simple interest amount of principal amount of $5,000, annual interest rate of 6% and time of 18 months.

Solution:

principal amount = $5,000

rate = 6%

m = 12 months/year

n = 18 months

simple interest amount = $5,000 × (6% / 12months/year) × 18months

    = $5,000 × (0.06 / 12months/year) × 18months

   = $450

 

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