How to calculate simple interest for 15 months?

Unraveling the Principal: Calculating Simple Interest over 15 Months

Calculating simple interest is usually straightforward, but the fractional year presented by a 15-month period can introduce a bit of complexity. This article will guide you through the process, focusing on how to determine the principal amount given the interest earned over 15 months.

The key to solving this lies in understanding and applying the simple interest formula and correctly converting the time period. The standard formula is:

Simple Interest (I) = (Principal (P) x Rate (R) x Time (T)) / 100

Where:

• I represents the total interest earned.
• P represents the principal amount (the initial investment). This is what we aim to calculate.
• R represents the annual interest rate (expressed as a percentage).
• T represents the time period in years.

The challenge with a 15-month period is that it’s not a whole number of years. To convert 15 months to years, we simply divide by 12 (the number of months in a year):

T (in years) = 15 months / 12 months/year = 1.25 years

Now, let’s illustrate this with an example. Suppose you earned $75 in simple interest over 15 months at an annual interest rate of 5%. To find the principal, we need to rearrange the simple interest formula to solve for P:

P = (I x 100) / (R x T)

Substituting our known values:

• I = $75
• R = 5%
• T = 1.25 years

P = (75 x 100) / (5 x 1.25)

P = 7500 / 6.25

P = $1200

Therefore, the principal amount (the initial investment) was $1200. This means that an investment of $1200 at a 5% annual interest rate would yield $75 in simple interest over a 15-month period.

Important Considerations:

• Compound Interest: This calculation uses the simple interest formula. If the interest was compounded (meaning interest earned is added to the principal and earns interest itself), the calculation would be significantly more complex.
• Accuracy: Always use precise decimal values throughout your calculation to avoid rounding errors, especially when dealing with fractions of a year.
• Units: Ensure consistency in units. Use the annual interest rate and the time expressed in years.

By understanding the simple interest formula and correctly converting the time period, you can accurately calculate the principal amount even when dealing with periods like 15 months. Remember to meticulously follow the steps and double-check your calculations to ensure accuracy.