Simple Interest Vocabulary

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Simple interest formula

Interest = principal × rate x time (decimal) (years)

Interest

Interest is earned when money is kept in a savings account or paid to the bank for borrowing money when taking out a loan.

Principal

Principal is the amount of money in an account or the amount of money borrowed from a bank.

Time

The amount of time the interest is calculated. Time must be in years. If time is given in months divide the number of months by 12.

Rate

The rate or interest rate is the percentage rate the bank pays on money in a savings account or the percentage rate the bank charges for borrowing money.


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