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You have learned how to calculate simple interest per year. It is pretty straightforward in that, using the formula, it is the principal times the interest rate times the number of years (I = PRT). But what happens if the principal amount is paid off in days rather than years? Let’s look at an example problem.
You want to borrow some money for a short period of time, say $6,300.00 at 8% for 310 days. We still use the formula I = PRT but now our worked problem should look as follows:
Working the problem:
$6,300.00 at 8% for 310 days
(as there are 365 days in a year but you are only using the money for 310 days, you show this in a fraction, i.e., 310 days/365 days)
I = PRT
6,300 x 0.08 x 310/365
6,300 x 0.08 = 504
$504.00 per year (but we don’t need the whole year so we must now divide as follows)
504 ÷ 365 (days) = 1.3808219 (this means the interest per day [also referred to as per diem] is $1.3808219)
$1.3808219 x 310 (days) = $428.05
I = $428.05
There are a few more steps to follow in calculating the per diem that now includes division but if you take each step slowly, you should have no problem finding the amount of interest that will be owed or paid at the end of the time period mentioned in each of the following ten problems.
$100.00 at 3.23% for 60 days.
I = PRT
100 x 0.0323 x 60/365
100 x 0.0323 = 3.23
$3.23 per year
3.23 ÷ 365 (days) = 0.0088493 per diem
$0.0088493 x 60 (days) = $0.53
I = $0.53
Answer (a) is the correct answer