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# Explain Simple Interest.

**Simple interest** is a way that interest can be calculated on a loan or investment.

The standard formula is $S.I = P\times R\times T$

“P” is the principal on the loan,

“R” is the rate at which interest is being charged, and

“T” is the time over which interest is charged.

For example, you need to borrow 20,000 to make a purchase. The loan you gets has an annual interest rate (assessed using simple interest) of 10 percent and a term of five years.

To determine how much yo will pay in interest, you will need to use the simple interest formula: $SI = P\times R\times T$

Here, the equation will be 20,000 times 10 percent times 5 years, or $ 20,000 \times\frac{10}{100} \times 5$.

Calculating you will get that you need to pay 10,000 as interest for the loan.