Final answer:
The correct formula to calculate simple interest, which is interest on only the principal amount, is I = Prt. For compound interest, you would use the future value formula and subtract the principal to find the compound interest earned.
Step-by-step explanation:
To calculate interest for personal finance, one can use different formulas depending on the type of interest being calculated. If you wish to calculate simple interest, which is interest calculated only on the principal amount, you would use the formula:
I = Prt
Where:
I stands for the interest earned,
P represents the principal amount (the initial amount of money),
r is the interest rate (in decimal form), and
t is the time the money is invested or borrowed for, in years.
On the other hand, compound interest is calculated on the principal amount plus the accumulated interest. The formula to calculate future value with compound interest is:
Future Value = Principal x (1 + interest rate)^time
The compound interest can then be found by subtracting the principal from the future value. It's important to remember that compound interest will result in a higher amount than simple interest since it accounts for the interest that accumulates on previously earned interest.
For the provided options, the correct choice to calculate simple interest is option b. It presents the formula required to find the interest:
I = Prt