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simple interest

Simple Interest

A method of computinginterest. Interest is computed from the (original) principal alone no matter how much money has accrued so far.

Formula:     A = P(1 + nr)

     A = final amount
     P = principal, or original amount
     n = number of years
     r = rate of interest per year

Example:
$2,000 is deposited in an account paying 12% per year. Find the balance after 7 years using simple interest.

Solution:
P = $2,000, r = 0.12, and n = 7
A = $2,000(1 + 7·0.12) = $3,680

See also

Compound interest, continuously compounded interest

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