To calculate how much you'll pay in simple interest, multiply the principal (P) by the interest rate (R) by the time period in years (T), then divide that number by 100.

For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest.

How Simple Interest Works: An Example Suppose you take out a $5,000 loan at 6% interest for two years. To calculate the amount of interest you will pay, use the simple interest formula above.

For example, if you borrow $1,000 from a friend and agree to pay 6% simple interest for two years, the formula above tells you that you'll pay $120 in total interest ($1,000 x 0.06 x 2).

Here's how to calculate simple interest and compounding interest at 3% APY. Simple interest: $50,000 X 0.03 = $51,500Compound Interest (at 3% APY) equates to $51,500.24 ...

Calculating the interest on a savings account will show the small business how much money it will earn on the deposit. As an example, Firm A deposits $1,000 in a savings account.

— T is the number of years. Here’s how the simple interest formula looks if the initial deposit is $1,000, the annual interest rate is 4% and the number of years is five. 200 = 1,000 x .04 x 5 ...

For example, if you made a one-time deposit of $10,000 into a savings account that paid a simple interest rate of 2.00% annually, you would earn a flat $200 each year your $10,000 remains in the ...