GED Math Help: Simple Interest = PRT

The formula for finding simple interest is Principal x rate x time. One key concept is to remember that time is based on 1 year. Therefore, if the time is 5 years, you multiply by 5. However, if the time is 6 months, you multiply by 0.5 because 6 months is 1/2 of a year.

Lets try out this formula. Lets say that you are borrowing $1000 for 3 years at 5% interest. How much interest would you earn?

I = 1000 * 0.05 * 3 You would earn $150.00

Lets try another example. You are purchasing a car for $12,500 and will be taking out a 5 year loan at 3%. What will be the TOTAL cost (car plus interest)?

12,500*0.03 * 5 = $1875

To find the total cost, you should add the interest to the original principal.

$12,500 + $1875 = $14375