Which statement about simple interest is correct?

Which statement about simple interest is correct?

• A. It is calculated on the total amount including previously earned interest.
• B. It compounds the interest over time, increasing the balance.
• C. It applies only to borrowings, not savings.
• D. It is calculated as Principal × Rate × Time.

Answer: (D)

Simple interest is calculated using Principal × Rate × Time. This means you earn or owe interest only on the original amount you started with, not on any interest that has already been added. That’s why this formula is the correct description: interest is based on the initial principal, for the given time period, at the stated rate. It doesn’t involve compounding, which would add interest to the principal and then calculate future interest on that larger amount. Simple interest can be used for savings or loans depending on the terms, not just borrowings.

Simple interest is calculated using Principal × Rate × Time. This means you earn or owe interest only on the original amount you started with, not on any interest that has already been added. That’s why this formula is the correct description: interest is based on the initial principal, for the given time period, at the stated rate. It doesn’t involve compounding, which would add interest to the principal and then calculate future interest on that larger amount. Simple interest can be used for savings or loans depending on the terms, not just borrowings.