How do Federal Reserve banks, as well as the federal government, typically calculate simple interest?
A. Using 31 days in each month
B. Based on exact interest
C. Based on ordinary interest
My answer is B
My answer is B.
The correct answer is C. Based on ordinary interest.
Federal Reserve banks and the federal government typically calculate simple interest based on ordinary interest. Ordinary interest assumes a year consists of 365 days, regardless of whether it is a leap year with 366 days. This method is commonly used for various financial calculations, such as determining interest on loans or investments.
To calculate simple interest, both Federal Reserve banks and the federal government typically use the method of "exact interest" calculation.
Exact interest is based on the actual number of days that a loan or investment is outstanding. It takes into account the specific start and end dates of the loan or investment, allowing for a more precise calculation of interest.
On the other hand, ordinary interest assumes that each month consists of 30 days, irrespective of the actual number of days in a month. This method does not take into account the exact number of days in a given period and may result in a slightly different interest calculation compared to exact interest.
Therefore, the correct answer to your question is B) Based on exact interest.