Question

What lump sum amount of interest will be paid on a loan of P200,000 made for the acquisition of construction materials on March 14, 2020 and repaid on December 1, 2025 with an ordinary simple interest? What lump sum amount of interest will be paid on the loan made with an exact simple interest?

Answer 1

In Ordinary simple interest ,the interest is based
on the year of 360 days.
In exact simple interest ,the interest is based
on the year of 365 days in general years and 366 days in Leap years.
Year 2020 is a Leap year , so we shall consider 366 days
year for excact method.
Assume that the interest rate is 10% pa.
Loan amount P 200,000
No of Days Loan due :
March 14-31	17
April	30
May	31
June	30
July	31
Aug	31
Sep	30
Oct	31
Nov	30
Dec 1.	1
Total Days	262

Under Ordinary Method interet for 262 days will be =200,000*10%*262/360=P 14,555.56

Under Exact Method interet for 262 days will be =200,000*10%*262/366=P 14,316.94

So , Interest amount will be higher under ordinary method.