The formula for calculating simple interest is:
Simple Interest (SI) = Principal (P) × Rate (R) × Time (T)
Where:
- Principal (P): The initial amount of the loan (in this case, $1000).
- Rate (R): The annual interest rate (in this case, 5 percent, or 0.05 as a decimal).
- Time (T): The duration for which the money is borrowed (in this case, 3 years).
Using the formula, we can calculate the simple interest:
SI = P × R × T
SI = 1000 × 0.05 × 3Now, performing the calculation:
SI = 1000 × 0.05 = 50
SI = 50 × 3 = 150Therefore, the simple interest on a $1000 loan at 5 percent interest after 3 years is $150.