P principal amount invested r rate of interest per interest period eg 10 per year t number of interest periods eg 2 years Example. Always take a moment to identify the values given in the problem. P Principal which is your initial amount r interest rate as a decimal.
You multiply the principal interest rate and time.
I is the daily interest rate. This type of interest usually applies to short term loans and this type of method is used to calculate it. Simple Interest If the bank charges Simple Interest then Alex just pays another 10 for the extra year. Alex pays Interest of 1000 10 x 2 Years 200 That is how simple interest works.