Which of the following is the correct formula for calculating simple interest?

• A. Simple Interest = Principal \( \times \) Rate \( \times \) Time
• B. Simple Interest = (Principal + Rate) \times Time
• C. Simple Interest = Principal \( \times \) (1 + Rate)^{Time}
• D. Simple Interest = Principal \div (Rate \times Time)

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of simple interest. Simple interest is a method of calculating the interest charged on a principal amount over a specific period of time at a fixed interest rate. It does not compound, meaning the interest is calculated only on the original principal.
2. Step 2: Identify the correct formula for simple interest. The formula is: Simple Interest = Principal × Rate × Time. This formula calculates the interest by multiplying the principal amount by the interest rate and the time period.
3. Step 3: Analyze the incorrect options provided in the problem. For example, the formula 'Simple Interest = (Principal + Rate) × Time' is incorrect because it adds the principal and rate, which is not how simple interest is calculated.
4. Step 4: Similarly, the formula 'Simple Interest = Principal × (1 + Rate)^Time' is incorrect because it represents compound interest, where the interest is calculated on the principal plus previously accumulated interest.
5. Step 5: Finally, the formula 'Simple Interest = Principal ÷ (Rate × Time)' is incorrect because dividing the principal by the product of rate and time does not align with the definition of simple interest. The correct formula remains Simple Interest = Principal × Rate × Time.