INTEREST COMPUTATION AND TABLES

INTEREST COMPUTATION AND TABLES

Simple interest computation involves multiplying the principal (amount of note) by the selected interest rate and
the product or result is the interest for one year. Remember, the interest rate (.06 or .09 for example) is a
decimal and two points are to be marked off from the right.

There are 12 months in a year or 365 days. This latter figure makes for an awkward denominator. As a result, as
an acceptable business practice, we assume 12 months of 30 days each, and 360 days to a year.

To avoid long computations which may involve cumbersome fractions, it is common to use prepared
computations in the form of interest tables which show the base as $1, $100 or $1,000 for a variety of interest
and time periods. From the interest table, we determine the factor and multiply it by the amount involved if it
exceeds or is less than the base of the table. The following illustrates the different methods and short cuts.

Long Conventional Method

1. What is the interest on $4,650 for 75 days at 10 percent?

2. What is the interest on $4,650 for 1 year, 4 months and 10 days at 10 percent?

Answer:

1. 4650 x .10 x 75/360 = $96.88

2. 4650 x .10 x {360 + 120 + 10} or 490/360 = $632.92

(proper fraction for periods if less than 1 year; improper fraction for periods of more than 1 year)

Use of Interest Tables Method

1. Same problem

Look in table on next page for 30 days at 10 percent

factor is 8.3340 = 30

factor is 8.3340 = 30

factor for 15 days 4.1670 = 15

20.8350 75 days

$4,650 = $4.65 per $1,000

Multiply $4.65 x 20.8350 = $96.88

2. Table not complete to show higher factors, but it could be done this way:

30 day factor 8.3340

x 16 (16 months)

133.3440

2.7780 (10 days)

136.1220 factor for 1 year,

4 months and 10 days at $1,000

Therefore, 136.1220 x 4.65 (number of thousands) = $632.92 interest.

INTEREST TABLE FIGURED ON $1,000

360 Days to the Year

Days 5% 6% 7% 8% 9% 10%
1 $0.1389 $0.1667 $0.1944 $0.2222 $0.2500 $0.2778
2 0.2778 0.3333 0.3889 0.4444 0.5000 0.5556
3 0.4167 0.5000 0.5833 0.6666 0.7500 0.8334
4 0.5556 0.6667 0.7778 0.8888 1.0000 1.1112
5 0.6944 0.8333 0.9722 1.1111 1.2500 1.3890
6 0.8333 1.0000 1.1667 1.3333 1.5000 1.6668
7 0.9722 1.1667 1.3611 1.5555 1.7500 1.9446
8 1.1111 1.3333 1.5556 1.7777 2.0000 2.2224
9 1.2500 1.5000 1.7500 2.0000 2.2500 2.5002
10 1.3889 1.6667 1.9444 2.2222 2.5000 2.7780
11 1.5278 1.8333 2.1389 2.4444 2.7500 3.0558
12 1.6667 2.0000 2.3333 2.6666 3.0000 3.3336
13 1.8056 2.1667 2.5278 2.8888 3.2500 3.6114
14 1.9444 2.3333 2.7222 3.1111 3.5000 3.8892
15 2.0833 2.5000 2.9167 3.3333 3.7500 4.1670
16 2.2222 2.6667 3.1111 3.5555 4.0000 4.4448
17 2.3611 2.8333 3.3055 3.7777 4.2500 4.7226
18 2.5000 3.0000 3.5000 4.0000 4.5000 5.0004
19 2.6389 3.1667 3.6944 4.2222 4.7500 5.2782
20 2.7778 3.3333 3.8889 4.4444 5.0000 5.5560
21 2.9167 3.5000 4.0833 4.6666 5.2500 5.8338
22 3.0556 3.6667 4.2778 4.8888 5.5000 6.1116
23 3.1944 3.8333 4.4722 5.1111 5.7500 6.3894
24 3.2222 4.0000 4.6667 5.3333 6.0000 6.6672
25 3.4722 4.1667 4.8611 5.5555 6.2500 6.9450
26 3.6111 4.3333 5.0555 5.7777 6.5000 7.2228
27 3.7500 4.5000 5.2500 6.0000 6.7500 7.5006
28 3.8889 4.6667 5.4444 6.2222 7.0000 7.7784
29 4.0278 4.8333 5.6389 6.4444 7.2500 8.0562
30 4.1667 5.0000 5.8333 6.6666 7.5000 8.3340