Simple interest is calculated by multiplying the principal amount by the interest rate as a percentage and by the time period in years. For example, if you have a $5,000 loan at 5% interest for 2 years, you would multiply $5,000 by 5% (0.05) and by 2 years to get $1,000 in interest. The total amount owed after 2 years would be $5,000 (principal) + $1,000 (interest) = $6,000.