Financial
Simple interest formula: I = P * r * t for days, months, and years
Calculate non-compounding interest and maturity payoff on promissory notes under Actual/365 and commercial Actual/360 conventions.
Align the time fraction t with the annual interest rate r
Simple interest accrues strictly on the original principal without compounding: Interest = Principal * AnnualRate * TimeInYears.
Convert an actual day count into a year fraction using the contract’s convention. This lesson compares Actual/365 Fixed (days divided by 365) and Actual/360 (days divided by 360); it does not decide which convention applies to a particular product.
Use the specified inclusion/exclusion rules when obtaining the day count. Actual/365 Fixed keeps 365 as its denominator in leap years; Actual/Actual is different. The example assumes unchanged principal, no fees and no interim payments.
| Principal (A) | AnnualRate (B) | DaysHeld (C) | Actual/365 Interest | Actual/360 Interest |
|---|---|---|---|---|
| 15000 | 0.08 | 90 | 295.89 | 300.00 |
| 15000 | 0.08 | 365 | 1200.00 | 1216.67 |
Simple interest and total maturity value formulas
On $15,000 at 8% for 90 days, Actual/365 interest equals $15,000 * 0.08 * (90 / 365) = $295.89, for a maturity payoff of $15,295.89.
=ROUND(A2 * B2 * (C2 / 365), 2)Actual/360 commercial convention and maturity total
Under Actual/360, 90 / 360 is an exact quarter (0.25), yielding $300.00.
=ROUND(A2 * B2 * (C2 / 360), 2)Try the example
Use the original values or change them to test your understanding.