Answer to Question #248691 in Financial Math for RONA MAE

Question

Two equal investments are made in a leap year with the same interest rate; however, one is at
ordinary simple interest rate and the other one is at exact simple interest rate. Which of the two equal
investments will generate a bigger interest for one year?

Answer 1

Ordinary simple interest is a simple interest that uses 360 days as the equivalent number of days in a year while Exact simple interest is a simple interest that uses exact number of days in a year which is 365 (or 366 for leap year).

The denominator for exact simple interest rate is higher and therefore will make the value for time t be lower thus giving less interest compared to ordinary simple interest which has a lower denominator of 360.