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Simple Interest
used for short borrowings such as obtained for less than one year
Principal
Refers to the amount borrowed, deposited or interested
Rate of Interest
Refers to the percentage of the principal per year.
Time
Refers to the length of time or period from the date the loan is made to the date the loan becomes due or payable.
Approximate time
assumes that each of the 12 months in a year has 30 days
Actual time
counts the exact number of days, hence, a year is taken as composed of 365 days
Ordinary interest
one year is taken as 360 days
Exact interest
365 days in a year
Maturity Value
The amount of interest generated in terms of year is based only on the starting amount or
principal amount.
Principal or Face Value
The amount or proceeds received by the borrower from the lender
Bank Discount/Simple Discount
Interest deducted in advance from the face value
Compound Interest
refers to the interest calculated on the initial principal, which also includes all the accumulated interest from previous periods
