Simple Interest

A Simple Interest is a interest payment on the principal excluding any compound interests or additional fees.

• Context:
  • It can be calculated as a function of annual interest rate (r), initial borrowed amount or outstanding balance (B), annual frequency of payment (n), and number of payments over a given time period, (m):

[math]\displaystyle{ S=\frac{r\times B \times m}{n} }[/math]

• Example(s):
  • Assuming the outstanding balance is $2000 and annual interest rate is 10% then:
    • the simple interest of a monthly payment over a period of 1 month is [math]\displaystyle{ ($2000\times 0.1 \times 1)/12 =$16.67 }[/math]
    • the simple interest of a monthly payment over a period of 3 month is [math]\displaystyle{ ($2000\times 0.1 \times 3)/12 = $50 }[/math]
    • the simple interest of a weekly payment over a period of 4 weeks is [math]\displaystyle{ ($2000\times 0.1 \times 4)/52 = $15.38 }[/math]
• Counter-Example(s)
  • Compound Interest.
• See: Loan, Interest Payment, Interest Rate.

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References

2016

• (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/Interest#Simple_interest
  • Simple interest is calculated only on the principal amount, or on that portion of the principal amount that remains. It excludes the effect of compounding. Simple interest can be applied over a time period other than a year, e.g. every month.

    Simple interest is calculated according to the following formula:

[math]\displaystyle{ \frac {r \cdot B \cdot m}{n} }[/math]

where

r is the simple annual interest rate

B is the initial balance

m is the number of time periods elapsed and

n is the frequency of applying interest.

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