What formula is used to compute simple interest loans?

The formula used to compute simple interest loans is based on the principle amount, the rate of interest, and the time for which the loan is taken. This is expressed as P x R x T, where P represents the principal amount (the initial sum of money), R denotes the annual interest rate (expressed as a decimal), and T indicates the time (usually in years) for which the money is borrowed.

Using this formula, you can easily calculate the interest accrued on a loan over a specified period. For instance, if you borrow $1,000 (P) at an interest rate of 5% (0.05) for 3 years (T), the simple interest would be calculated as $1,000 x 0.05 x 3, resulting in $150 in interest.

The other options do not represent the correct computation for simple interest. For instance, adding or subtracting terms without the multiplication by the interest rate does not yield a valid result for interest calculations. The key to understanding simple interest is recognizing the relationship between the principal, the interest rate, and the time component—highlighted accurately in the correct formula.