Simple interest is a fundamental financial concept used to calculate the interest earned on a principal amount over a period of time. Here’s a brief overview of the key terms and steps involved in solving simple interest problems:

Key Concepts:

1. Principal (P): This is the initial sum of money deposited or borrowed.

2. Interest Rate (r): This is the percentage at which the interest is calculated annually.

3. Time (t): This is the period over which the interest is calculated, typically given in years.

4. Simple Interest (I): This is the interest earned or paid on the original principal for the entire period without compounding.

Simple Interest Formula:

The formula to calculate simple interest is: 𝐼=𝑃×𝑟×𝑡 where:

• $I$ is the simple interest,
• $P$ is the principal amount,
• $r$ is the annual interest rate (expressed as a decimal),
• $t$ is the time the money is borrowed or invested in years.

Steps to Solve:

1. Identify the Principal: Determine the initial amount of money borrowed or invested.

2. Determine the Interest Rate: Identify the annual interest rate. Convert the percentage to a decimal by dividing by 100.

3. Establish the Time: Find out the duration for which the interest will be calculated, typically in years. Adjust if the time is given in months or days.

4. Apply the Simple Interest Formula: Use the simple interest formula to calculate the interest by multiplying the principal, the interest rate, and the time.

5. Calculate the Total Amount: To find the total amount after the interest period, add the simple interest to the principal: $A=P+I$ where $A$ is the total amount at the end of the period.

Example:

Suppose you invest PHP 5,000 at an annual interest rate of 6% for 3 years.

• Principal (P) = PHP 5,000
• Interest Rate (r) = 6% or 0.06 (as a decimal)
• Time (t) = 3 years

Using the simple interest formula: 𝐼= 5000 × 0.06 × 3 = 𝑃𝐻𝑃 900

So, the interest earned is PHP 900, and the total amount after 3 years would be: 𝐴 = 𝑃 + 𝐼 = 5,000 + 900 = 𝑃𝐻𝑃5,900