What is the formula for calculating simple interest?

The formula for calculating simple interest is Interest = Principal × Rate × Time. This formula captures the essential components involved in determining the amount of interest accrued over a certain period.

Here's how each term in the formula contributes to the calculation:

• Principal refers to the initial amount of money that is invested or borrowed.

• Rate is the annual interest rate expressed as a decimal. It indicates the percentage of the principal that will be earned or paid in interest over one year.

• Time signifies the duration for which the money is invested or borrowed, typically measured in years.

When you multiply these three variables together, you get the total interest earned or owed for that period. This method assumes that the interest amount is consistent across the time specified, characteristic of simple interest as opposed to compounded interest where interest is calculated on previously earned interest as well.

The remaining options misrepresent the fundamental concept of interest calculation, either by incorrectly adding terms together or misapplying the relationship between the principal, rate, and time. This ensures that the correct formula is crucial for accurately computing simple interest in various financial situations.