Expert: Pawan Musale - 2/6/2011

Question
Hello:

I am having difficulty determining the interest for the following:

$475 @5% for 1 year, 5 months, 6 days

The answer is $34.04.

Do you know how this amount is determined?

I thank you for your reply.

Answer
Kenneth,

This is simple interest (SI) calculation.

Your Principal amount (P) = 475
Rate (R) = 5% (which is annual rate)
Time (T) = 1 year 5 months 6 days
Now, time calculation is tricky.

Since your interest rate is annual, we need to convert your time duration to years.
So, we will first calculate number of days. Now we do not know which are the 5 months hence we will ASSUME 30 days for each month. This will lead to approximate calculation (if we know which are those exact months, then it will be precise calculation)

So, 1 year = 365 days
   5 months = 30*5 = 150 days
So total duration = 365 + 150 + 6 = 521 days

Now 365 days means 1 year. So 521 days = 521/365 = 1.43 years.

So your time (T) = 1.43 years.

Now we have all the values to calculate your interest (I).
Equation is,

I = P*T*R/100
I  = 475*1.43*5/100
I = $33.96

This is very close to what you have got ($34.04).
If we know exact months, then we will get the accurate answer.

I hope that this is clear now.

Kindly let me know if you need additional information.

All the best :)

Regards,
Pawan