simple interest is paid only on the .

Simple interest is paid only on the principal (the original amount of money borrowed or invested).

Key idea

• Simple interest is calculated only on the initial sum of money, called the principal, and does not include any interest on previously earned interest.

• In many textbook definitions and flashcards, simple interest is described as “interest paid only on the principal in a bank account or loan.”

In formula form

• The usual formula for simple interest is
  Simple Interest=P×R×T\text{Simple Interest}=P\times R\times TSimple Interest=P×R×T

where:

* PPP = principal (original amount of money)

* RRR = rate of interest per year

* TTT = time in years

Since only PPP appears in the calculation (and not previously accumulated interest), simple interest is therefore paid only on the principal.

So the completed sentence is: “Simple interest is paid only on the principal.”

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