Simple Interest Method - Under this method, the interest is computed only on the amount originally lent {principal amount] to the borrower. Interest is not charged on any accumulated interest under this method. Simple interest is usually applied on short-term borrowings. Formula: | = 5|;th where: I = Simple interest P = Principal Amount r = rate of interest t = time Note: Observe consistency. If the rate is expressed in terms of year, the time should also be expressed in terms of year. Similarly, if the rate is expressed in terms of month, the time should also be expressed in terms of month. Formula for monthly compound interest The Compound Interest Formula Where: Amount Interest Rate (decimal) A = the future value of the investment/loan, including interest P = the principal investment amount (the initial deposit or loan amount) A = P(1+:)" Time r = the annual interest rate (decimal) n = the number of times that interest is compounded per unit t Principal Number of times interest t = the time the money is invested or borrowed for is compounded per unit't'Formula for annual compound interest The above procedure of computing amount is lengthy, tedious and time consuming. Fortunately, a formula is available to compute compound amount for any number of periods. The formula is: A = P (1 + a)" Where: A: Compound amount P = Principal amount 1: rate of interest n: number of period (time)