Calculate Simple Interest In Google Sheets

What Is Calculate Simple Interest in Google Sheets?

The simple interest formula helps us calculate the interest we earn or pay on a loan or investment. The simple interest in Google Sheets takes into account the initial principal amount, while the compound interest takes into account the accumulated interest over time. The formula used to calculate the simple interest is as follows.

I  = P*R*t

where,

1. I – the interest amount
2. P – the principal amount (the initial sum of money)
3. R – rate of interest
4. T – the time period (in years)

Let us look at a basic example. If there is a principal amount of $2,000, with an annual interest rate of 7%, let us find the simple interest after two years. Enter the formula in cell A1, as shown below. You get a value of $280 as the interest amount for a principal of $2,000 at 7$ after two years.

Syntax

The formula to calculate the simple interest is as follows:

Simple Interest = (Principal x Rate x Time)

Where:

1. The Principal is the amount of money initially borrowed or invested.
2. The Rate is the money to pay back on top of the principal expressed as a percentage of the principal.
3. The Time is the total time needed to borrow or invest the money, expressed in years.

How to calculate simple interest in Google Sheets ?

Calculating the simple interest accurately is essential as it helps you make informed financial decisions with regard to borrowing or investing money. For this, you must understand how to apply the simple interest formula. Let us look at the steps for applying the formula in Google Sheets.

Step 1: Open a Google Sheet and set up your columns. Enter the principal amount, the interest rate, and the period as shown below.

Step 2: Now, select the cell where you want to get the output for the interest. Here, we select cell B4. Use the following formula to calculate the simple interest.

I=(P*R*t)/100

Therefore, enter the formula as follows.

=(B1*B2*B3)/100

Here, we divide by 100 as the interest rate is a percentage value.

Step 3: Press Enter. You get the interest amount for the five years at 7.5% for a principal of $8,000.

Since Google Sheets does not have a direct formula to calculate the simple interest amount, we cannot add a formula from the Google menu bar.

Examples

Let us create some detailed and exciting examples to calculate simple interest in Google Sheets. We will include different scenarios of calculating the interest to help understand it better. 

Example #1

In this example, let us include multiple rows to show how the simple interest can be calculated for different sets of values simultaneously.

Given below in the table is the principal amount, interest rate, and time period in some columns for multiple rows.

Step 1: Let us apply the simple interest formula to cell D2. Enter the following formula.

=(A2 * B2 * C2)/100.

Step 2: Press Enter. You get the interest value for the first set of data.

Step 3: Click on cell D2 and drag the fill handle to cell D5. It will apply the formula to the other rows as well. Observe the result.

This example shows you how simple interest varies according to different principal amounts, interest rates, and periods. It is simple to calculate as there is no compounding, which makes the calculation slightly more complex.

Example #2 – Google Sheets Compound Interest

Compound Interest is the interest accrued on both the principal and the interest accumulated over past periods, whereas simple interest accrues only on the principal. For instance, if you invest $100 with a return of 5% on the investment compounded annually, you earn 5% of 100 = $5 in the first year. So, you now have $105.

Similarly, in the second year, the interest is calculated on this compounded amount. So, it is 5% on $105. You now have 105 + 5.25 = 110.25, and so on. So, the compound interest formula often used in Google Sheets is Compound interest = P(1+R/t)N*t. Here, P is the principal, R is the interest rate, and N is the number of years. t represents the compounding period; if its annual, t=1; if its semi-annual, t=2, etc.

Step 1: Enter the required data to calculate the Google Sheets compound interest formula, as shown below.

Step 2: We must apply the compound interest formula mentioned above. So, the formula to be entered in cell B5 is: = P(1+R/t)^N*t

=B1*(1 + B2/B3)^B4*B3

Step 3: Press Enter.You will get the final amount as shown below.

There is another method to compute the compound interest using the FV function. It computes the future value of an investment at a fixed interest rate. Its formula is as follows:

Step 4: Substituting the given values in the FV formula, we write in cell B5.

=FV(B2,B3*B4, 0, -B1)

Here, we use the negative value for the amount as we are depositing it to the bank.

Step 5: Press Enter and verify the answer.

Example #3 – Future Value Simple Interest Formula

The future value simple interest formula is where we add the principal amount in the beginning and the interest earned on that amount after the completion of the tenure. The Simple Interest Formula using FV is given as, F V = P(1 + rt)

Here,

P is the principal value, I is the interest, r is the rate, and t is the time. In our example, let us use the FV formula to calculate the future value when Roger invests $1,500 in his friend’s business at an interest of 4.5% after 6 years.

Step 1: Enter the required details in a Google Sheet.

Step 2: Enter the formula in cell B4.

FV = P(1 + rt)

=B1*(1 + B2*B3)

Step 3: Press Enter; you get the future value after six years for the interest rate of 4.5%. Now, to calculate the simple interest, subtract the FV from the initial principal amount by applying the formula =B4-B1 to cell B5.

Simple Interest vs. Compound Interest in Google Sheets

Simple Interest

1. The Simple interest is calculated on the principal amount of a loan.
2. The Simple interest is calculated by multiplying the principal by the interest rate and then by the term of a loan.
3. It can be simply calculated in Google Sheets as follows: Simple Interest = (Principal x Rate x Time)
4. It grows at a steady rate.

Compound Interest

1. The Compound interest is calculated on the principal amount and the accumulated interest of the previous periods.
2. The Compound interest in Google Sheets is the interest calculated on both the initial principal and the previously accumulated interest.
3. It is calculated in Google sheets as follows: FV = P(1 + rt)
4. If the interest is calculated on a compound basis rather than on a simple basis, it can work to your advantage when it comes to your investments and can be a potent factor in wealth creation.
5. It grows at an exponential rate due to compounding.

Important Things To Note

1. We can use the formula to calculate simple interest in Google Sheets for bonds, and savings accounts and for calculating interest for personal loans.
2. In the case of investments, you get a higher return with compound interest than simple interest.
3. The formula we choose to calculate the simple interest can affect the interest we calculate, so it’s essential to choose the appropriate procedure based on the situation.

Frequently Asked Questions (FAQs)

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