Simple Interest and Maturity Value

Simple Interest and Maturity Value Interest rates are always stated for a year. I.e. 6% is six percent interest for one year. How to calculate simple interest for different lengths of time 1. How to calculate simple interest for more than one year. Basic formula for interest is Principle X Rate X Time = Interest Example: Candy borrows $10,000 at 5% interest for five years. $10,000 X 5% X 5 = $2,500 Interest 2. How to calculate simple interest for one year and some odd months. Basic formula for interest is Principle X Rate X Time = Interest when the loan is for more than a year with some odd months. Time is stated as: Months / 12 Example 1: Candy borrows $10,000 at 5% interest for 1 ¾ months. $10,000 X 5% X 21/12 = $875 Interest ¾ = .75 X 12 = 9 months + 12 months = 21/12 months Example 2: Candy borrows $10,000 at 5% interest for 1 ¼ months $10,000 X 5% X 15/12 = $625 Interest ¼ = .25 X 12 = 3 months +12 months = 15/12 months 3. How to calculate simple interest for one year. Basic formula for interest is Principle X Rate X Time = One years interest. Example: Candy borrows $10,000 at 5% interest for one year. $10,000 X 5% X 1 = $500 interest 4. How to calculate simple interest for less than a year using months formula: Basic formula for interest is Principle X Rate X Time = Interest when the loan is for less than a year using months. Time is stated as: Months / 12 Example: Candy borrows $10,000 at 5% interest for 6 months. $10,000 X 5% X 6/12 = $250 interest

MJC Revised 1/2012

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Simple Interest and Maturity Value 5. How to calculate simple interest for less than a year using days with the ordinary interest dating method: Use 360 days for the year. Basic formula for interest is Principle X Rate X Time = Interest when the loan is for less than a year using ordinary days. Time is stated as: days / 360 Example: Candy borrows $10,000 at 5% interest for 180 days $10,000 X 5% X 180/360 = $250 Interest 6. How to calculate simple interest for less than a year using days with the exact interest dating method: Use 365 days for the year. Basic formula for interest is Principle X Rate X Time = Interest when the loan is for less than a year using exact days. Time is stated as: days / 365 Example: Candy borrows $10,000 at 5% interest for 180 days $10,000 X 5% X 180/365 = 246.57 Interest

Maturity Value The formula to calculate Maturity Value is: Principle + Interest = Maturity Value Example 1: Candy borrows $10,000 at 5% interest for 180 days exact interest dating. $10,000 X 5% X 180/365 = 246.57 Interest $10,000 + $245.57 = $10,246.57 Maturity Value Example 2: Candy borrows $10,000 at 5% interest for 180 days ordinary interest dating. $10,000 X 5% X 180/360 = $250 Interest $10,000 + $250 = $10,250 Maturity Value

MJC Revised 1/2012

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