Final answer:
To calculate simple interest, use the formula Interest = Principal × Rate × Time. For compound interest, the formula is Future Value = Principal × (1 + interest rate)^time, and the compound interest is calculated by subtracting the Present Value from the Future Value.
Step-by-step explanation:
Calculating interest rates involves understanding the different types of interest calculations. Two primary methods are simple interest and compound interest. Simple interest is an interest rate calculation only on the principal amount. Its formula is: Interest = Principal × Rate × Time. For compound interest, the formula is more complex as it includes interest on the interest already earned.
To calculate compound interest, one would use the formula: Future Value = Principal × (1 + interest rate)^time. The compound interest can then be determined by subtracting the original principal amount from the future value: Compound Interest = Future Value - Present Value.
For example, if you were applying this to a three-year scenario, the interest rate could be found using the formula provided, and the calculations would be demonstrated in a table similar to Table 17.4.