Expert: Ahmed Salami - 12/7/2010

Question
Hello:

Here is the simple interest calculation for $100 at 10% for 25 days:

$100.00 X 10% X 25/365 = $0.6849315...

If I'm not mistaken $100.0 X 10% will equal the interest for one year, which is $10.00.
25/365 can be expressed as 25 X 1/365. 1/365 X $10.00 equals the interest for on day, which is $0.02739726. When this amount is multiplied by 25, the number of days the $100.00 will earn interest the result is $0.6849315.

If the $100 X 10% is multiplied by 25 first does this amount indicated the amount for 25 years and if so, how does 1/365 of the amount for 25 years equal the same amount for 25 days? In other words 1/365 of 25 years does not equal 25 days.

I thank you for your reply.


Answer
Hi Kenneth,
10% of $100 is the interest for one year, so multiplying by 25 is simply the interest for 25 years.
1/365 of 25 years actually equals 25 days. Just remember that 25 years is (25 x 365) days. Or that 1/365 of 1 year is 1 day and it'll all make sense.

Regards