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Simple Interest

Simple Interest

Simple Interest is always calculated as a percentage of the original amount.

Simple Interest is calculated over a fixed period, such as a month, or a year. If multiple periods (eg 7 years) are involved, then the total interest is a multiple of the interest amount for one period (7 x interest for 1 year).

Example 1

Jacob has £150 in an account earning 2.5% simple interest per annum (each year). How much interest does he earn over 4 years?

In one year he earns `150 xx frac(2.5)(100)` = £3.75

Over four years, 4 x 3.75 = £15.00

Answer: £15.00

Example 2

Robyn earned £24 in simple interest from her savings over 6 years. If the interest rate was 2.5%, what was her original investment?

Amount earned in interest each year is 24 ÷ 6 = £4.00

Interest earned in one year: `4 = text(amount) xx frac(2.5)(100)`

4 x 100 ÷ 2.5 = amount

= 160

Answer: £160.00

See also Percentage Increase and Decrease