ASVAB Study Guide4.Percent Change
Calculating the interest earned or owed on an initial principal amount over time.
$$I = P \times R \times T$$
Interest is earned only on the initial principal amount. Time (T) must always be calculated in years.
Example
You deposit $500 into a savings account that earns 4% simple interest yearly. How much interest do you earn after 3 years?
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Step 1: Convert interest rate to a decimal: $$\frac{4}{100} = 0.04$$
Step 2: Plug numbers into the formula: $$I = 500 \times 0.04 \times 3$$
Step 3: Calculate interest: 20 × 3 = $60
Practice problems
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Problem 1
An investor purchases a $2000 bond that pays 5% simple annual interest. How much interest will they collect after 4 years?
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Answer: $400
Step 1: Convert 5% to a decimal: $$\frac{5}{100} = 0.05$$
Step 2: Use the formula $$I = P \times R \times T$$: $$I = 2000 \times 0.05 \times 4$$
Step 3: Calculate the final interest: 100 × 4 = $400
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Problem 2
A bank loan of $1000 is taken out at a simple interest rate of 6% per year. What is the total amount (principal + interest) owed back after 2 years?
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Answer: $1120
Step 1: Convert 6% to a decimal: 0.06. Calculate interest: 1000 × 0.06 × 2 = $120
Step 2: Add interest to the initial principal: $$1000 + 120$$
Step 3: Find the total repayment amount: $1120
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Problem 3
How much simple interest is accumulated on a $600 deposit at an annual rate of 8% after 6 months?
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Answer: $24
Step 1: Convert 6 months into years: $$\frac{6}{12} = 0.5$$ year
Step 2: Convert 8% to a decimal: 0.08. Use $$I = P \times R \times T$$
Step 3: Calculate interest: 600 × 0.08 × 0.5 = 48 × 0.5 = $24
Ensure time (T) is expressed in years; if given in months, divide by 12 first.