Kinds of Simple Interest

There are basically two kinds of simple interest: ordinary and exact. These two terms uses the same formula for solving the simple interest but they differ on using the time.

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 366 for leap year).

These two kinds of simple interest are only applicable if the unit of time used is in days.

Example 1:
 $180
Explanation:

Principal amount is $15,000.

Rate of interest is 6%.

Counting the number of days from May 30 to August 10;

Note: Since May 30 is the beginning date, it is not included in counting.

May 31 1

June 1-30 30

July 1-31 31

August 1-10 10 Total 72 days


Converting days into years:

72 days x `((1 year)/(360 days ))` = `1/5 years`

Using the formula for solving the simple interest;

Interest = Principal x Rate x Time

Interest = $15,000 x 6% x `1/5`

Interest = $15,000 x 0.06 x `1/5`

Interest = $180

Therefore, the businessman will pay $180 interest.

Example 2:
 $20.12
Explanation:

Principal amount is $1,800.

Rate of interest is 8%.

Counting the number of days from December 25 to February 14;

Dec 25-31 6

Jan 1-31 31

Feb 1-14 14

Total 51 days

Converting days into years:

51 days x `((1 year)/(365 days ))` = `51/365 years`

Using the formula for solving the simple interest;

Interest = Principal x Rate x Time

Interest = $1,800 x 8% x `51/365`

Interest = $1,800 x 0.08 x `51/365`

Interest = $20.12

Therefore, the Louie will pay $20.12 interest.







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