What does the formula I = P x R x T calculate?

The formula I = P x R x T is used to calculate simple interest. In this formula, 'I' stands for the interest earned or paid, 'P' represents the principal amount (the initial sum of money), 'R' is the rate of interest (usually expressed as a decimal), and 'T' is the time the money is invested or borrowed for, measured in years.

This formula highlights the direct relationship between the principal, interest rate, and time, indicating that the interest amount grows linearly with these factors. It is a fundamental concept in finance that allows individuals and businesses to determine how much interest will be accrued over a specific period, based on a fixed rate and initial principal.

Other options do not accurately reflect what the formula calculates; net profit pertains to revenues minus expenses, total assets refer to the sum of everything a company owns, and annual income measures the total earnings over a year, none of which involve the straightforward calculation provided by this specific formula.