The most prevalent type of interest is simple interest. Simple interest is calculated by multiplying the principal amount by the rate of interest and by time. For example, if you take a simple interest-bearing loan with a principal amount of $1000 and an annual rate of 3%, you will pay $30, as interest, for each year that passes. This means that after two years, you would have paid $60 as total interest.
The principle of simple interest is that money earned on an investment is calculated by multiplying the principal by the specified rate of interest for a given time period. It’s often used to figure financial returns such as interest rates or APRs, and can also be applied to credit cards and mortgages. When calculating simple interest, the mathematical formula is I = P*R*T where I is the Interest, P is the Principal, R is the Rate, and T is Time.