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 per cent 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.
Continue Reading: How to Calculate Ordinary Interest and Exact
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