Ordinary interest is calculated on the basis of a 360-day year or a 30-day month; exact interest is calculated on a 365-day year. The interest formulas for both ordinary and exact interest are actually the same, with time slightly differing when given as number of days.
Interest is the sum paid for the use of money. Business concerns and individuals who find themselves in need of cash or financial credit borrow money and agree to pay a certain percentage for the privilege of using the borrowed amount.
Interest is computed on an agreed rate of interest. It is a certain percent of the sum borrowed called the principal. After the interest period or loan period is over, the money-lender would receive the original amount of the loan together with the agreed interest.
In simple interest, the basic equation is: Interest = Principal x Rate. However, there is the element of time which also plays a significant part in interest problems. Thus, the basis of equation is modified to: Interest = Principal x Rate x Time.
Time is to be expressed in number of years or as part of a year. When time is given in terms of months, it is easily converted to a fractional year by using the equivalence 1 year = 12 months.
But when time is given in terms of days, two possible equivalence may be used:
Commercial firms and banks often use ordinary interest. Problems on exact interest specify that the interest required is exact; those not qualifying the kind of interest needed are taken to mean ordinary interest. Formulas to be used will be:
I = Prt where P = principal (original sum), r = rate of interest and t = time expressed in years
F = P + I where F = final amount to be paid
What is the ordinary interest on $1,360 for 90 days at 4%? Given: P = $1,360, r = 4%, D = 90 days
Find the exact interest on $500 at 8% for 45 days. Given: P = $500, r = 8%, D = 45 days
Nowadays borrowing money is already a trend, so borrowers should at least become familiar to the different calculations of interests for the ordinary interest and exact interest for the money they wanted to borrow from any banks and other financing agencies.
Source of idea: my old personal notes when I took up Business Mathematics
Finances are important to any economy, but they are not a substitute for the real resources. Overemphasis on financial engineering and manipulation has, particularly in this century, made it clear that overambitious manipulation of finances and excess investment can only place the whole economy at risk of asset bubbles and consequent crisis.
Like Social Security Benefits, the Survivor benefits are also difficult to compute and usually need a automatic calculator. However, knowing the basis of how they are calculated can be useful and help one be aware of the benefits that can sometime become available.
All trade involves exchange of goods, but trading across political boundaries of nation states, accompanied with the need to adjust to different regulations, regimes, currencies, culture and markets necessitates additional preparedness. To being with, it is important to be aware of the idiosyncrasies of sovereign markets where one wishes to trade, understand the risks posed therein and be prepared for it.