Calculating Monthly Interest

Oct 13, 2025 by vinooalluri.com 118 views

Simple interest is a type of interest calculated on the initial principal amount, and it does not take into account the compounding of interest over time. The formula for calculating simple interest is given by:

Simple Interest Formula

${ \text{Simple Interest} = P \times r \times t }$

Where:

P is the principal amount (initial amount deposited)
r is the annual interest rate (in decimal form)
t is the time period (in years)

Calculating Monthly Interest

In this problem, Perry earns 5 percent simple interest annually on his savings account. To calculate the interest earned each month, we need to first convert the annual interest rate to a monthly interest rate.

Converting Annual Interest Rate to Monthly Interest Rate

Since there are 12 months in a year, we can convert the annual interest rate to a monthly interest rate by dividing the annual interest rate by 12.

${ \text{Monthly Interest Rate} = \frac{5\%}{12} = \frac{0.05}{12} = 0.00417 }$

Calculating Monthly Interest

Now that we have the monthly interest rate, we can calculate the interest earned each month on $\$ 650$ .

${ \text{Monthly Interest} = P \times r \times t }$

Substituting the values, we get:

${ \text{Monthly Interest} = \$650 \times 0.00417 \times 1 }$

${ \text{Monthly Interest} = \$2.71 }$

Selecting the Correct Answer

Based on the calculation, the correct answer is:

$\$2.71$

This is the amount of interest Perry will earn each month on $\$ 650$ .

Conclusion

$In this problem, we calculated the interest earned each month on $\$ 650$ using the simple interest formula. We first converted the annual interest rate to a monthly interest rate and then used the formula to calculate the monthly interest. The correct answer is $\$2.71$.<br/> **Simple Interest Q&A**$

Frequently Asked Questions About Simple Interest

Simple interest is a fundamental concept in finance and mathematics. Here are some frequently asked questions about simple interest, along with their answers.

Q: What is simple interest?

A: Simple interest is a type of interest calculated on the initial principal amount, and it does not take into account the compounding of interest over time.

Q: What is the formula for calculating simple interest?

A: The formula for calculating simple interest is:

${ \text{Simple Interest} = P \times r \times t }$

Where:

P is the principal amount (initial amount deposited)
r is the annual interest rate (in decimal form)
t is the time period (in years)

Q: How do I calculate the interest earned each month?

A: To calculate the interest earned each month, you need to first convert the annual interest rate to a monthly interest rate by dividing the annual interest rate by 12. Then, you can use the simple interest formula to calculate the monthly interest.

Q: What is the difference between simple interest and compound interest?

A: Simple interest is calculated only on the initial principal amount, while compound interest is calculated on both the principal amount and any accrued interest.

Q: Can I use the simple interest formula to calculate interest for a period other than a year?

A: Yes, you can use the simple interest formula to calculate interest for any time period, not just a year. Simply substitute the time period (in years) into the formula.

Q: How do I calculate the total interest earned over a period of time?

A: To calculate the total interest earned over a period of time, you need to multiply the monthly interest by the number of months in the period.

Q: Can I use the simple interest formula to calculate interest on a loan or investment?

A: Yes, you can use the simple interest formula to calculate interest on a loan or investment. Simply substitute the principal amount, interest rate, and time period into the formula.

Q: What are some real-world applications of simple interest?

A: Simple interest has many real-world applications, including:

Calculating interest on savings accounts and certificates of deposit (CDs)
Determining the interest rate on a loan or credit card
Calculating the interest earned on investments, such as stocks or bonds
Determining the interest rate on a mortgage or other type of loan

Conclusion

In this article, we answered some frequently asked questions about simple interest. We covered topics such as the formula for calculating simple interest, how to calculate interest earned each month, and the difference between simple interest and compound interest. We also discussed some real-world applications of simple interest.