Question

Principal = $2,400, Rate = 2%, Time = 2 months. How do you calculate the simple interest?

Answer 1

`$8.00`

Explanation:

Assumption: The interest of 2% is annual.

1st approach

Calculating this on a monthly basis gives:
`(2%)/12 = 1/12xx2/100 = 2/1200` per month

So the interest for 2 months is `$2400xx2(2/1200) = $8.00`

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2nd approach:

`2/12xx"annual return" -> 2/12xx(2400xx2/100) = $8.00`

Notice that this has the same numbers as the 1st approach in that:

`2/12xx2/100 = 2xx1/12xx2/100 = 2(2/1200)`