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What is the ordinary and exact interest?
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 366 for leap year).
What is the ordinary interest formula?
In simple interest, the basic equation is: Interest = Principal x Rate. However, there is the element of time which also plays a significant part in interest problems. Thus, the basis of equation is modified to: Interest = Principal x Rate x Time. Time is to be expressed in number of years or as part of a year.
Which is bigger ordinary interest or exact interest?
With larger amounts invested, the difference between ordinary interest and exact interest (a 365 day-year) can be substantial. simple interest based on a 360-day year rather than a 365-day year; the latter is called exact interest. The ratio of ordinary interest to exact interest is 1.0139.
How are exact interest and ordinary interest calculated?
Ordinary interest is calculated on the basis of a 360-day year or a 30-day month; exact interest is calculated on a 365-day year. The interest formulas for both ordinary and exact interest are actually the same, with time slightly differing when given as number of days. Interest is the sum paid for the use of money.
What’s the difference between exact interest and 360 day interest?
Interest that is based on a 360-day year instead of a 365-day year. In contrast, exact interest is based on a 365-day year. If large sums of money are involved, the difference can be significant.
What’s the ratio of interest to daily interest?
The difference between the two bases when calculating daily interest on large sums of money can be substantial. The ratio of ordinary interest to exact interest is 1.0139. Copyright (c) by Barron’s Educational Series.
How is interest expressed in terms of months?
Thus, the basis of equation is modified to: Interest = Principal x Rate x Time. Time is to be expressed in number of years or as part of a year. When time is given in terms of months, it is easily converted to a fractional year by using the equivalence 1 year = 12 months. Commercial firms and banks often use ordinary interest.