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Question 1085959: Find the ordinary and exact interest on 8800 for 85 days at 11¾% simple interest.
Answer by jim_thompson5910(35256)   (Show Source):
You can put this solution on YOUR website! With ordinary interest, there are 360 days in a year
With exact interest, there are 365 days in a year
The formula we use is
simple interest = P*r*t
P = principal
r = interest rate in decimal form
t = time in years
The interest rate of 11¾% is equivalent to
11¾% = [(11)+(3/4)]% = [11+0.75]% = 11.75%
Convert from percent to decimal form
11.75% = 11.75/100 = 0.1175
So r = 0.1175
The time value t for ordinary interest is t = 85/360 years
Ordinary interest = P*r*t
Ordinary interest = 8800*0.1175*(85/360)
Ordinary interest = 244.138888888889
Ordinary interest = 244.14
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Repeat the steps above, but now use t = 85/365 to get the exact interest earned
Exact interest = P*r*t
Exact interest = 8800*0.1175*(85/365)
Exact interest = 240.794520547946
Exact interest = 240.79
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In summary:
Ordinary interest = 244.14
Exact interest = 240.79
You earn more with ordinary interest because there are 5 less days to compute interest for that given year.
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