TYPES OF INTEREST BETWEEN TWO DATES

a. Ordinary interest, exact time

b. Ordinary interest, approximate time
c. Exact interest, exact time
d. Exact interest, approximate time

ORDINARY INTEREST, EXACT TIME

 Is known as the Banker’s Rule
 This rule shall apply if the type of interest is not specified

1. How much must be paid on April 16, 1992 to settle a loan of P 8 200 borrowed on
December 3, 1991 with a simple interest of 14%.

Solution:
P = P 8 200; r = 14%; t = exact time/360
(31 - 3 days) = 28 days December
31 January
29 February
31 March
16 April
Exact Time = 135 days

135
F = P( 1 + rt) = 8 200[ 1 + (0.14)(360) ] = 8 200[ 1 + .0525 ]
F = 8 200( 1.0525 )
F = P 8 630.50

2. Find the simple interest at 14% on P 7 500 borrowed on February 2, 1994 if the amount is
due on October 2, 1994.

Solution:
8
P = 7 500; r = 14%; t = 12 = 0.666666667
I = Prt = 7 500(0.14)(0.666666667)
I = P 700

3. What is the ordinary simple interest on P 6 300 at 10.5% from March 16, 1990 to August
16, 1990?

Solution:
����� ����
R = 10.5%; P = P 6 300; t = 360

( 31 - 16 days ) = 15 days March

30 April
31 May
30 June
31 July
16 August
Exact Time = 153 days
 153
t= 360
= 0.425

I = Prt = 6 300(0.105)( 0.425) = P 281.1375

METHODS OF COMPUTING INTEREST

 When the time given in a simple interest problem is between two dates, there are two
methods to compute the days for the numerator and the denominator.

a. To compute the number of days in the numerator:

o Exact or actual time method

o Approximate time method

b. To compute the days in the denominator:

o Ordinary interest method

o Exact interest method

 Four Possible Combinations

a. Ordinary interest method using exact or actual time

����� ����
I=PxRx 360

b. Ordinary interest method using approximate time

����������� ����
I=PxRx 360

c. Exact interest method using exact time

����� ����
I=PxRx 365

BANKER’S RULE

 In case the problem fails to specify the method to compute simple interest, ordinary
interest method using exact or actual time shall be used and this is the banker’s rule

GUIDELINES IN CONVERTING TIME

a. If the answer in computing for time is a whole number, it is automatically equal to year
or years.

b. If the answer in computing for time is a whole number and a decimal, the whole
number represents the years and the decimal represents a fraction of a year

 The decimal is converted into days as follows:

i. If ordinary interest is used, the decimal is multiplied by 360

ii. If exact interest is used, the decimal is multiplied by 365
  Any fraction or decimal arising from the multiplication made, whether lower,
equal, or higher than 0.5, is rounded up to the higher amount.

Example:
Armina borrowed Php 50 000 from First Bank at 8% interest. She paid Php 8 900
interest plus the principal on the due date.

Required: Determine the time involved using

a. Ordinary interest
b. Exact interest

Answer:
The time involved from the time of borrowing up to the due date using ordinary
interest is required. It is computed by dividing the interest with the product of the principal
and interest rate.

P = Php 50 000; I = Php 8 900; R = 8%; T = ?

8 900 8 900
T= 50 000 � 0.08
= 4 000

T = 2.225 years

 Under ordinary interest method, the decimal 0.225 is multiplied by 360

T = 0.225 x 360 = 81
T = 2 years and 81 days

 Using the exact interest method, the decimal 0.225 is multiplied by 365,

T = 0.225 x 365 = 82.125 83

T = 2 years and 83 days