You are going to borrow $71,500.00 for 200 days. You are to be loaned the money at an interest rate of 7.5%, and you are given the option to choose exact or ordinary interest. Which would you choose?
You are going to borrow $71,500.00 for 200 days. You are to be loaned the money at an interest rate of 7.5%, and you are given the option to choose exact or ordinary interest. Which would you choose?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You are going to borrow $71,500.00 for 200 days. You are to be loaned the money at an interest rate of 7.5%, and you are given the option to choose exact or ordinary interest. Which would you choose?
Expert Solution
Step 1
Answer:
Usually, a simple ordinary interest is an ordinary interest using 360 days as the average number of days in a year. Consequently, exact simple interest uses 365 days for a year (366 days in case of leap year).
Step 2
Calculation of ordinary and exact interest:
Excel spreadsheet:
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