Interest
• Interest
• the cost of borrowing money
• Principal
• the money borrowed
• Rate of interest
• stated as a percentage and is based on a certain
time period
Simple Interest
• Formula:
Interest = Principal * Rate * Time
• Example:
– What is the interest charged on a $1500 loan @ 10% for 1 year?
» $1500 * .10 * 1 = $150 Total Interest
Ordinary and Exact Interest
• If the loan is for less than one year, use a
fraction of a year
• Two ways to calculate simple interest:
• Ordinary Interest
• based on a 360 day per year calendar
• assumes 30 days in each month
• Exact Interest
• based on a 365 day per year calendar
Ordinary/Exact Example
• Assume you have a $2500 loan at 12% interest for
60 days
• What is the ordinary interest you would pay?
• Formula: Principal * Rate * Days/360
$2500 * .12 * 60/360
• What is the exact interest you would pay?
• Formula: Principal * Rate * Days/365
$2500 * .12 * 60/365
Calculating Days
• To calculate the number of days between two
dates:
• Count the days in the first month excluding the first
day
• Count the days in each succeeding month
Days in Each Month
• Use your knuckles
March
Feb
• on the knuckle - 31 days
• between the knuckles - 30 days
• exception - February
June
April
July
• start on the left hand and work
your way through your hands
using your knuckles and the
space between your knuckles
May
Jan
Calendar
January
31
July
31
February
28
August
31
March
31
September 30
April
30
October
May
31
November 30
June
30
December 31
31
Calculating Days Example
• How many days are from July 15 to
September 15?
• Solution:
July (31-15)
August
September
Total Days
= 16
= 31
= 15
= 62
Calculating Days Example 2
• From June 10 to September 22 is how
many days?
• Solution:
June
July
August
September
Total Days
=
=
=
=
=
Calculating Days Answer
• From June 10 to September 22 is how many
days?
• Solution:
June (30 - 10)
July
August
September
Total Days
=
=
=
=
20
31
31
22
= 104