Exact and Ordinary Interest PDF

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Summary

There are basically two kinds of simple interest: ordinary and exact. Ordinary simple interest is a simple interest that uses 360 days as the equivalent number of days in a year. On the other hand, Exact simple interest is a simple interest that uses exact number of days in a year which is 365 (or 3...

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Exact and Ordinary Interest XACT AND ORDINARY INTEREST: Exact Interest - is computed in 365 days in a year as the time factor denominator. Ordinary Interest - is computed in 360 days in a year as the time factor denominator. Note:    

Banks and most other institutions still use ordinary interest because it yields somewhat higher interest as compared to exact interest. If the time of interest is not specified in any problem, use the Banker's Rule or the Ordinary Interest in Actual Time. Rate must be converted to a decimal or fraction before substituting any formula. The time period is computed in terms of the year.

Note: 1. Rate must be converted to a decimal or fraction before substituting any formula. 2. The time period is computed in terms of years. This means that the time period expresses in months or days must be converted to a fraction of a year before being substituted into the formula for t unless stated otherwise. 3. Assume ordinary interest in actual time or banker's rule interest ( 360 days per year ) unless stated otherwise

Example 1 Find the actual and approximate time from March 3, 2017, to September 10, 2017. Solution:

Hence, there are 191 days in actual time and 187 days in approximate time.

Example 2 Find the actual and approximate time from November 18, 2015, to May 9, 2016. Solution: Since 2016 is a Leap Year, the month of February contains 29 days in the actual time. Thus we will have this solution.

There are 173 days in actual time while 171 days in approximate time.

Example 3 Find the interest on Php28,700 at 7.3% from March 14, 2017, to August 16, 2017, using the following:

a.) ordinary interest using actual time b.) ordinary interest using approximate time c.) exact interest using actual time, and d.) exact interest using approximate time? Solution: Given: P = Php 28,700

r = 7.3%= 0.073

Step 1: Determine the approximate and actual time of the term....