MBATricks

Tips and Tricks about my MBA experience

Finance :: Simple Interest Rate

When someone lends money to someone else, the borrower usually pays a fee to the lender. This fee is called ‘interest’. ‘Simple‘ interest, or ‘flat rate‘ interest. The amount of simple interest paid each year is a fixed percentage of the amount borrowed or lent at the start.

The simple interest formula is as follows:

Interest = Principal × Rate  ×  Time

where:  

‘Interest‘ is the total amount of interest paid,

‘Principal‘ is the amount lent or borrowed,

‘Rate‘ is the percentage of the principal charged as interest each year. The rate is expressed as a decimal fraction, so percentages must be divided by 100. For example, if the rate is 15%, then use 15/100 or 0.15 in the formula.

‘Time‘ is the time in years of the loan.

The simple interest formula is often abbreviated in this form:

I = P R T

To get the monthly payment, T should be divided by 12 or by 52 if you want the weekly payment.

Whenever money is borrowed, the total amount to be paid back equals the principal borrowed plus the interest charge:

total repayments = ( principal + interest )

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