This type of interest usually applies to short term loans and this type of method is used to calculate it. P Principal which is your initial amount r interest rate as a decimal. I Prt becomes r IPt Remember to use 1412 for time and move the 12 to the numerator in the formula above.
The interest rate is typically stated as a percentage of the principle per period of time for example 18 percent per year or 15 percent per month.
Interest that is paid solely on the amount of the principle is called simple interest. Get your calculator and check to see if youre right. For example if the annual interest rate on your mortgage is 8 you would use 008 in the compound interest formula. To answer this question you begin by working out 5 of 250 which 1250.