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Business Math: How to Calculate Interest

a person calculating interest

To calculate interest correctly, you need to know three values:

  1. The principle amount
  2. The interest rate
  3. The amount of time (in years or fractions of a year)

When you know these three values, calculating interest is simple.

We’ll call interest (I), principle (P), rate (r), and time (t). Then I = Prt.

Example: On June 1st, an employee borrows $350 from his employer who charges 6% interest as long as it is paid back by the first of the year. How much will the employee owe on January 1st?

Answer: The principle is $350, or P=350. The interest rate is 6%, or r=.06. We need to figure out what t equals since it is not in the form of years. To do this, we need to find out what our fraction of a year is. And to do that, we need to know the number of days of the loan. Let’s just add them up. June = 30, July = 31, August = 31, Sept = 30, Oct = 31, Nov = 30, Dec = 31. So the total days will be 214 and the fraction of the year is (214)/(365).

Our formula, then, looks like this: I = (350)(.06)(214/365) = $12.31

Your turn!

If you have a problem you’d like me to help you solve, please leave a comment!

Do you need to try more caluclations, other than calculating interest? Check out our free math calculators! is an online time and expense tracking service for employees and contractors. Try it for FREE to see how it works!

10 Responses

    1. You’d have to check your amortization schedule. Your principle paid will be lower in the beginning of your loan and get higher as you get closer to paying it off.

      1. The owner of a retailing organization is interested in the relationship between price at which the commodity is offered for sale and the quantity sold. The following samples have been collected:
        Price 25 45 30 50 35 40 65 75 70 60
        Quantity Sold 118 108 112 100 111 108 95 88 91 96

        anyone can solve ?

  1. You are planning to invest 5000 in a bank with rate of 6% simple interest. How much time you need to invest to make it 9000?

  2. This is a very helpful article. This will surely help me to do my accounting especially when calculating interest. Thanks for sharing this article.

  3. Thanks for sharing this article. I need to learn how to calculate interest. This article is a good guide for me. I’ll definitely return to this site.

  4. Thanks for sharing this article. This is a big help for me to avoid issues in calculating interest. This article is very easy to follow. This is a very useful post. I’ll definitely return to this site.

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