Math help

[lady-MGS]

I've been working on promissory notes and discounting and my head is spinning. My question is, if anyone knows.. lol.. Why do some loans have 360 days and others have 365?

I'm supposed to have this week off for school but I'm having a rough time trying to understand this and decided to get a head start. I'm not really sure if it even matter atm but it's driving me nuts trying to figure out why they are the way they are.

[ch33s3r]

I'm not sure, but I looked it up and found an answer one person gave:

"That is by tradition. So in the old days, you would get 1/360 of the annual interest compounded daily. This comes out to a small increase in the actual yield you earn. I suppose it was based on the principle that each month contained 30 days."

Source: What if the computer programer use a 360-day year to compute interest on loans receivables?.? - Yahoo! Answers

It's probably not the best answer, but it's all that I could find in a short time of researching. I hope that is helpful enough for you

[ViTO]

Dont ask me why but....


Traditionally there are 2 methods...

The 365/365 Method is considered the Stated Rate Method

The 360/365 Method is is considered the Bank Method

The use of the 360-day calendar dates back to ancient Egyptian times and is based on the lunar calendar rather than a deliberate attempt to confuse !!

Bank Method:"The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal is outstanding."

Principal Loan Amount = $10,000,000
Stated Rate = 8% per annum (interest only/nonamortizing)
Daily Interest = $2,222.22 (($10,000,000 x 0.0/360)
Annual Interest = $811,111($2,222.22 x 365)
Actual Yearly Interest Rate = 8.11%


Stated Rate Method:"All interest calculated under this Note shall be computed based on the actual number of days elapsed in a year consisting of 365 days."

Principal Loan Amount = $10,000,000
Stated Rate = 8% per annum (interest only/nonamortizing)
Daily Interest = $2,191.78 (($10,000,000 x 0.0/365)
Annual Interest = $800,000($2,191.78 x 365)
Actual Yearly Interest Rate = 8%

GOOGLE FTW

[ch33s3r]

lol you win, Vito

[lady-MGS]

ViTO FTW!!

Thank you to both of you. The info does help out a great deal. It made it all make more sense to me and a little less complicated

[ViTO]

The truth is...

The only thing I know about promissory notes...

You would get them when you played the old school...




Do they still have them in the new version ?!?




In any event, glad it helped

V