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7a Exact and Ordinary Interest

This document discusses exact and ordinary interest, using actual and approximate time periods. It provides examples of calculating interest using these four approaches. Specifically: 1. Exact interest uses the actual number of days divided by 365 as the time period, while ordinary interest uses the actual number of days divided by 360. 2. When calculating exact interest using approximate time, the approximate number of days is divided by 365, while for ordinary interest it is divided by 360. 3. The example shows that using ordinary interest with the actual time period results in the highest interest amount, following the "banker's rule".

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1K views9 pages

7a Exact and Ordinary Interest

This document discusses exact and ordinary interest, using actual and approximate time periods. It provides examples of calculating interest using these four approaches. Specifically: 1. Exact interest uses the actual number of days divided by 365 as the time period, while ordinary interest uses the actual number of days divided by 360. 2. When calculating exact interest using approximate time, the approximate number of days is divided by 365, while for ordinary interest it is divided by 360. 3. The example shows that using ordinary interest with the actual time period results in the highest interest amount, following the "banker's rule".

Uploaded by

Vj Mc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1.2.

1 Exact and Ordinary Interest

• Four different times are possible in


counting the number of days
between two dates. If we express
the number of days as a fraction of a
year, we either use the 360 or 365
(366 if leap year) as our
denominator.
1.2.1 Exact and Ordinary Interest
• Let’s look at the following:
Exact Interest exact / actual time
1.
365
approximate time
2.
365
exact / actual time
Ordinary Interest 3.
360
approximate time
4.
360
Exact and Ordinary Interest
1. Exact Interest and Actual Time
actual number of days
Ie = Pr( )
365

2. Exact Interest and Approximate Time


approximate number of days
Ie = Pr( 365 )

3. Ordinary Interest and Actual Time


Io = Pr(actual number of days )
360
4. Ordinary Interest and Approximate Time
Io = Pr(approximate number of days )
360
Exact and Ordinary Interest

Illustration: when
P= ₧1000, r = 10%, te =170days ta=167days,
find Ie and Io.
Solution:
when P = ₧1000, r = 10%, te = 170days ta=167days, find Ie and Io.

1. Exact Interest and Actual Time


170
Ie =Pr(actual number of days ) = 1000(.1)( ) = ₧46.58
365
365
2. Exact Interest and Approximate Time
approximate number of days 167
Ie = Pr( 365
) = 1000(.1)(365 ) =₧45.75
3. Ordinary Interest and Actual Time
actual number of days 170
Io = Pr( 360 ) = 1000(.1)( 360 ) =₧47.22
4. Ordinary Interest and Approximate Time
approximate number of days 167
Io = Pr( 360 ) = 1000(.1)( 360 ) =₧46.38
Conclusion:
1. Exact Interest and Actual Time
Among the 4 computations, the ordinary
170
Ie = 1000(.1)( 365
) = ₧46.58 interest using actual time gives the highest
interest.

2. Exact Interest and Approximate Time


167 This is called the BANKER’S RULE.
Ie = 1000(.1)( 365
) =₧45.75
3. Ordinary Interest and Actual Time
170
Io = 1000(.1)( 360
₧47.22
) =₧47.22 Banker’s Rule
4. Ordinary Interest and Approximate Time
Io = 1000(.1)(167 ) =₧46.38
360
Example
1. On July 17, 2022; Marco borrowed ₱250,000 from
PNBank at 8% simple interest. He promised to pay the
principal and the interest on December 17, 2022. Find
a) the interest on the loan
b) the amount Marco would pay on December 17, 2022.
2. Dana borrowed ₱15,000 from Andrie at 15% simple interest.
She promised to pay the principal and the interest on October 27,
2022. If the loan was made on February 12, 2022, how much is
a) exact interest
b) ordinary interest.
Alt 8369 (peso sign)
3. Find the
a) exact interest using actual number of days
b) ordinary interest using actual number of days
c) exact interest using approximate number of days
d) ordinary interest using approximate number of days
on ₱35,000 at 14 ¼ % simple interest borrowed on May 23, 2021 and repaid on
September 14, 2021.

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