Question

You are going to borrow $71,500.00 for 200 days. You are to be loaned the money at an interest rate of 9%, and you are given the option to choose exact or ordinary interest. Which would you choose? Explain.

Answer 1

You would choose exact interest. 200 days is a smaller fraction of 365 days than it is of 360 days, so the effective rate would be lower for exact interest.

The amount of interest is

... I = Prt = 71,500·0.09·200/days

The larger value you choose for days, the smaller the interest amount will be.