Which of the following describes Simple Interest?

• A. Interest on the original principal only.
• B. Interest on principal plus accumulated interest.
• C. Interest on deposits only after a year.
• D. Interest on loan penalties.

Answer: (A)

Simple interest is earned or charged only on the original amount invested or borrowed, not on any interest that has already accumulated. This means the interest grows in a straight line over time. The common formula is I = P × r × t, where P is the principal, r is the rate, and t is time in years. For example, $1,000 at 5% for 3 years yields $1,000 × 0.05 × 3 = $150 in interest, so you’d have $1,150 total. If it were compound interest, you'd earn interest on the new total each period, which would be higher than this example. The description that matches simple interest is earning interest on the original principal only. The other statements describe compound interest, a condition about deposits, or penalties, which are not how simple interest is defined.