What type of interest is calculated solely on the principal amount?

Simple interest is calculated exclusively on the principal amount, which is the initial sum of money that is invested or borrowed. This type of interest does not take into account any previously accrued interest; instead, it remains constant throughout the life of the loan or investment. The formula for calculating simple interest is straightforward: Interest = Principal × Rate × Time, where the rate is the interest rate and time is the duration for which the money is invested or borrowed.

This method of interest calculation is often used in situations like personal loans, car loans, or short-term investments where the simplicity and predictability of interest payments are preferred. In contrast, other types of interest, such as compound interest, involve interest being calculated on both the principal and any previously accumulated interest, leading to potentially higher returns or costs over time. The other options provided do not relate to types of interest calculation, making simple interest the clear choice.