3.3.4 Applications Of Simple Interest

Friday, 29 – 1 – 2016

There are many commercial applications of simple Interest. For example, simple interest is used for Treasury notes, bills of exchange and many bank deposits. Because large sums of money are often involved, there must be clear rules or conventions used in applying simple interest. These conventions can differ betwen countries. Using bills of exchange as an example, the australian conventions are ;

 

(a) Interest rates are quoted on an annual basis.

(b) The time period t is calculated as the exact number of days divided by 365.

(c) In a leap year, 29 February is included in the number of days, but the year is still assumed to consist of 365 days.

(d) Calculations are made to the nearest cent

Bills of exchange are discussed in detail in section 9.5.3. The conventions used in Australia are illustrated in Examples 3.4 and 3.5.

 

Graham Peirson

Rob Brown

Steve Waston

Peter Howard

MC.Graw Hill Irwin

Business Finance. 2002

Page 46

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