To calculate the simple interest on a loan, you can use the formula:
Simple Interest = Principal × Rate × Time
Where:
- Principal is the initial amount of the loan.
- Rate is the interest rate (as a decimal).
- Time is the duration the money is borrowed for, in years.
In this case:
- Principal = $1000
- Rate = 5% = 0.05
- Time = 3 years
Putting these values into the formula:
Simple Interest = $1000 × 0.05 × 3
Calculating that gives:
Simple Interest = $1000 × 0.15 = $150
The total simple interest on a loan of $1000 at a 5 percent interest rate after 3 years is $150.