College Math Placement Practice Test

The correct formula for calculating simple interest is represented by I = PRT. In this formula:

- I stands for the interest earned or paid.

- P represents the principal amount, which is the initial sum of money invested or borrowed.

- R denotes the rate of interest, expressed as a decimal (for example, 5% would be 0.05).

- T is the time the money is invested or borrowed for, typically measured in years.

This formula indicates that the interest is directly proportional to the principal, the rate of interest, and the time period. By multiplying these three components, you can determine the total interest accrued over the specified period.

The other options do not correctly represent the formula for simple interest. For instance, including T² suggests a compounding effect which does not apply to simple interest calculations. Similarly, the formula involving division by P or the addition of RT does not accurately describe how simple interest is calculated. Understanding these distinctions is essential for effectively applying financial concepts.