We can define simple interest as the interest on a loan or investment calculated only on the amount initially invested or loaned*.*

**Formula to calculate simple interest.**

We calculate simple interest by multiplying the principal (p) by the rate of interest (r) multiplied by time taken (t) in years.

**Example:**

A trader borrowed $ 1000 from a money lending company, he was to pay it back in 5 years at a 5% interest rate. Calculate the simple interest.

Therefore, the simple interest is $ 100.