Use this calculator to determine the interest earned and the future value of an investment using simple interest. Enter the principal amount, annual interest rate, and time period below.
Simple interest is a straightforward method of calculating the interest charged on a loan or earned on an investment. It's based on the principal amount, the interest rate, and the time period involved. Here's a comprehensive guide on how to use the Simple Interest Calculator and understand the calculations behind it.
The formula for calculating simple interest is:
$$I = P \times r \times t$$
Where:
To calculate the future value of an investment or the total amount due on a loan, we add the interest to the principal:
$$\text{Future Value} = P + I = P + (P \times r \times t) = P(1 + rt)$$
Let's calculate the simple interest and future value for an investment of $10,000 at an annual interest rate of 5% for 3 years.
Step 1: Identify the values
Step 2: Apply the simple interest formula
$$I = P \times r \times t = 10,000 \times 0.05 \times 3 = 1,500$$
Step 3: Calculate the future value
$$\text{Future Value} = P + I = 10,000 + 1,500 = 11,500$$
Step 4: Interpret the results
The simple interest earned is $1,500, and the future value of the investment after 3 years is $11,500.
This diagram illustrates how a $10,000 investment grows over 3 years at a 5% annual simple interest rate. The principal remains constant, while the interest accumulates linearly over time. By the end of the 3-year period, the total value of the investment reaches $11,500, consisting of the $10,000 principal and $1,500 in earned interest.