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Kinds of Simple Interest

There are two types of simple interest: ordinary and exact. Ordinary simple interest uses 360 days in a year while exact simple interest uses the actual number of days, which is 365 or 366 in a leap year. These two types are only applicable when calculating interest in days. An example is provided to demonstrate calculating ordinary simple interest of $180 on a $15,000 loan from May 30 to August 10, 2012. A second example shows calculating exact simple interest of $20.12 on a $1,800 loan from December 25, 2010 to February 14, 2011.

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20 views2 pages

Kinds of Simple Interest

There are two types of simple interest: ordinary and exact. Ordinary simple interest uses 360 days in a year while exact simple interest uses the actual number of days, which is 365 or 366 in a leap year. These two types are only applicable when calculating interest in days. An example is provided to demonstrate calculating ordinary simple interest of $180 on a $15,000 loan from May 30 to August 10, 2012. A second example shows calculating exact simple interest of $20.12 on a $1,800 loan from December 25, 2010 to February 14, 2011.

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chloe
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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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:

On May 30, 2012 a businessman loans $15,000 in the bank for the expansion of his restaurant. It was

agreed that he will pay the amount with 6% rate of interest on August 10, 2012. What is the ordinary

simple interest to be paid?


$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:

Louie borrowed $1800 from his aunt last December 25, 2010. He promised that he will pay his aunt on

February 14, 2011 at 8% interest. Find the exact simple interest to be paid by Louie.
$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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