simple interest

Simple interest is interest computed on the original amount only, never on the interest already earned. The formula is I = Prt: the interest equals the principal P times the rate r times the time t. The rate must be a decimal — 6% is 0.06 — and the time must match the rate's period, so an annual rate takes the time in years. On $500 at 6% for 3 years, I = 500 × 0.06 × 3 = $90, and the account holds 500 + 90 = $590 at the end. The two common errors are leaving the rate as a whole number, using 6 instead of 0.06, which multiplies the answer by 100, and using a time in months against a rate quoted per year. Rearranging the same formula finds the rate or the time: from I = Prt, r = I ÷ (Pt) and t = I ÷ (Pr).