COURSEWORK

1. RM1000 was invested on 15 March 2005. If the simple interest rate offered was
10% per annum, find the interest received on 29 August 2005 using
(a) Exact time and exact simple interest,
(b) Exact time and ordinary simple interest,
(c) Approximate time and exact simple interest,
(d) Approximate time and ordinary simple interest.
Concepts used
(a) Exact time and exact simple interest

Interest calculations
167
I = 10000.1 365

= RM 45.75

(b) Exact time and ordinary simple interest

167
I = 10000.1 360

= RM 46.39

(c) Approximate time and exact simple

164
I = 10000.1 365

= RM 44.93

164
I = 10000.1 360

= RM 45.56

interest
(d) Approximate time and ordinary simple
interest

Method (b) is called Banker's Rule. This method is mostly used by banks in USA and in
international business transactions but not in Malaysia. In Malaysia, calculation of
interest is governed by a banking rule which states that the 365-day year must be used.
In Canada, method (a) is usually used.
Henceforth, we shall use the exact time and 360-day year in the interest discussions.

2. A debt of RM3000 will mature in three years' time. Find

(a) the present value of this debt,
(b) the value of this debt at the end of the first year,
(c) the value of this debt at the end of four years,
assuming money is worth 14% compounded semi-annually.

Year

(a)

(a) From P = S (1 +i)-n, we get

) -6

= RM1999.03
(b) P =S(1+i)-n

P =3000(1+

14
2

= RM 2288.69

) -4

3000
(b)

14
P = 3000(1+ 2

(c)

(c) Here, we have to find S instead of P in the formula, S = P (1 + i)nas the value of the
debt to be determined is on the right side of the original debt.
From S = P (1 + i)n, we get

S =3000(1+

14
2

)2

= RM 3434.70