Exact interest method (365 days) and ordinary interest method (360 days) for $450 loan at 12.9% interest rate 220 days.
only difference would be in the time fraction for I = PRT
220/365 in the first case, and 220/360 in the second.
(I assume my Canadian and the US methods are the same)
To calculate the interest on a loan using the exact interest method (365 days) and the ordinary interest method (360 days), you'll need to use the interest formula:
Interest = Principal × Rate × Time
Where:
Principal is the amount of the loan ($450 in this case)
Rate is the annual interest rate (12.9% or 0.129 as a decimal)
Time is the number of days the loan is outstanding (220 days in this case)
Let's calculate the interest using both methods:
1. Exact Interest Method (365 days):
Using this method, the interest is calculated by dividing the annual interest rate by 365 and then multiplying it by the number of days the loan is outstanding.
Interest (exact) = Principal × (Rate / 365) × Time
Interest (exact) = $450 × (0.129 / 365) × 220
Interest (exact) = $450 × 0.000352877 × 220
Interest (exact) = $34.98 (rounded to two decimal places)
So using the exact interest method, the interest on the $450 loan for 220 days would be approximately $34.98.
2. Ordinary Interest Method (360 days):
Using this method, the interest is calculated by dividing the annual interest rate by 360 and then multiplying it by the number of days the loan is outstanding.
Interest (ordinary) = Principal × (Rate / 360) × Time
Interest (ordinary) = $450 × (0.129 / 360) × 220
Interest (ordinary) = $450 × 0.000358333 × 220
Interest (ordinary) = $36.51 (rounded to two decimal places)
So using the ordinary interest method, the interest on the $450 loan for 220 days would be approximately $36.51.
Please note that the interest calculation may vary slightly depending on rounding and precise calculations.