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Whole time, 2 yrs. 4 mo.; time for 1st payment, 1 yr. 6 mo. 15 d., for 2d, 1 yr. 4 mo.; for 3d, 18 d. Hence we have the following Rates, .14; .0925; .08; .003-Then, to find amounts, 500×1.14= 570. 150x1.0925=163.875. 150×1.08=162. 100×1.003=100.3. Then, amt. of prin. $570.000 and $426.175

163.875+162+100.3 sum of amts. of payments,

Hence there remains due

$143.825

2. For value received, I promise to pay E. P. BARROWS, Jr. or bearer, one thousand dollars with interest. Hartford, March 10, 1827.

$1,000.00

WILLIAM MORRIS.

On this note were the following endorsements.

June 28, 1827, rec'd $500.00

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$155.75

Due

3. For value received, I promise to pay SELDEN W. SKINNER, of order, six hundred and seventy five dollars.

1816.

$675.00

Hartford, April 17,

SIMEON FAITHFUL.

On this note were the following endorsements.

May 7, 1817, rec'd $148.00

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Ans. $219.5108+

4. On demand, I promise to pay GEO. D. PRENTICE, or order, nine hundred and ninety nine dollars, ninety nine cents and nine mills; for value received. Hartford, May 19, 1823.

$999.999

THOMAS PUNCTUAL.

On this note were the following endorsements.

June 1, 1824, rec'd $300.00

Sept. 8, 1824, "

Aug.15,1824,

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$400.00

$60.00

$100.00

Jan.11, 1825, "

What is due June 1, 1826?

NOTE. This rule has been commonly considered as incorrect. Accordingly we are told that "though a very common rule it is a very bad one," and that "it may answer for short periods of time, but, in a long course of years will be found very erroneous." The objection made, is, that the interest allowed on the payments, will in time "expunge," or pay off the principal itself. For, it is said, that if a note be given for $100.00, and $6.00 be annually paid and endorsed on the note, then, as each of these $6.00 endorsements begins to draw interest from the time of its date till the settlement, it will be found in 10 years, that only $89.80 is due the creditor, according to the above rule. Now, it is said, these several annual payments were justly due the creditor on account of interest, since $6.00 is the annual interest of $100.00. It is therefore unfair that they

should "eat up" the principal, "on which not one cent has been paid, but only its annual interest." We are further told, that, in 20 years, there would be due the creditor only $37.60, "not the least fraction of the $100.00" principal having been paid. "Extend it to 28 years and the creditor would become the debtor, without receiving a cent of the $100.00."

The fact that the debt is thus "expunged" we grant, and this will take place, allowing 365 days to the year, in 23 years, 27 days, 13 hours, 37 minutes, 53.1— seconds. But we maintain that on the principles of simple interest, this ought to be the case. Let us take the instance mentioned above. Let the note for $100.00 run for 10 years. The amount at Simple Interest is $160.00. Then, if the note is settled at the end of 10 years, the debtor is only bound in law to pay $160.00, and this is all the creditor can claim. But suppose the annual 6 dollar payments to have been made, and suppose the creditor has put them at interest as soon as received. Then, on the first $6.00 he will gain 9 years interest; on the second, 8 years interest; on the third, 7 years interest, &c. For the nine payments, then, preceding settlement, he will receive the sum of these several amounts, which is found to be $70.20. But, as the legal interest is but $60.00, it is evident that he has received $10.20 more than the interest, and, consequently, the debtor must either give this amount to the creditor, or it must be deducted from the principal, leaving $89.80. If he gives it, nothing is more evident than that he gives 6 pr. ct. Compound Interest. Indeed, Simple Interest, annually paid, is Compound Interest. For, the creditor, on receiving his inter. est, may employ it in any profitable adventure, or he may instantly put it out at interest. Thus, the interest itself may be made to draw interest, and that is all that is necessary to constitute Compound Interest. It is the creditor's own fault if he does not improve his advantage. Of course, on the ground of Simple Interest, when the principal vanishes, by the above rule, it has been actually and really paid off to the "least fraction." And when the creditor falls in debt, it is because he has received, in fact, more than both principal and interest of the note. That is, although the sum of the payments themselves may be less, the real advantage, derived from them, and the actual sum which they might have been made to produce, will be found to exceed the amount of the note.

On the other hand, suppose that the debtor, instead of making these annual payments, should put $6.00, yearly, at interest. In 10 years he would have, as before, $70.20, and this he might apply towards paying the note. The result is the same as before; for $160.00-$70.20-89.80 which he has still to pay. Now, if he be allowed no interest on his payments, it is best for him to make no payment at all till the time of settlement; but to keep his money rather at interest than to give it to his creditor. For in this way he obtains the interest, which in the other case he loses, or rather gives away to his creditor.

The case we have been considering has been the strong ground of objection against this rule, and the argument drawn from it is very plausible, because at first thought it would seem, that the annual payments were nothing more than legal interest. But the pupil will by this time perceive, that 6 per cent. Simple Interest, for several years, is not worth as much as an annual payment of G dollars on the hundred. And he will perceive that the value of Simple Intercst diminishes, as the number of years increases. This, then, is the evil, if there be any, and it is an evil which results from the nature of Simple Interest itself. Hence, the argument drawn from the case above, may be a very good one against Simple, and in favour of Compound Interest, but instead of invalidat ing the rule, on the ground of Simple Interest, it establishes, most completely, its

correctness.

When the payments are larger, the case is clearer still. Any one will grant, that when a part, manifestly, of the principal is paid, allowance ought to be made for it, so that the creditor shall not still draw interest on the whole debt. And for the reason given above, viz. that the payment may be made to produce, in the hands either of creditor or debtor, its legal interest, it is evident that the whole payment should be deducted from the whole principal, and interest thenceforward, calculated on the remainder: or, which is the same thing in effect, the process in the rule should be employed. If it be granted, then, that the

above rule is correct, on the ground of Simple Interest, it is plain that one which produces different results, must be incorrect. Hence, the rules established by law in Connecticut and Massachusetts are incorrect, since they seem to be constructed for the special purpose of preventing the "eating up" of the princi pal. Of course they both allow more than Simple Interest, that is, they allow Compound Interest, which is contrary to the statute laws of both states. Hence, we have one statute enjoining a practice, which is made penal by another. will be necessary for the pupil to be acquainted with these rules.

It

MASSACHUSETTS RULE. FIND THE AMOUNT OF THE PRINCIPAL TO THE FIRST TIME WHEN A PAYMENT WAS MADE, WHICH, EITHER ALONE, OR TOGETHER WITH THE PRECEDING PAYMENTS, (IF ANY,) EXCEEDS THE INTEREST THEN DUE. FROM THIS, SUBTRACT THE PAYMENT, OR THE SUM OF THE PAYMENTS, MADE WITHIN THE TIME FOR WHICH INTEREST WAS COMPUTED, AND THE REMAINDER WILL BE A NEW PRINCIPAL, WITH WHICH, PROCEED AS BEFORE; AND SO ON, TO THE TIME OF SETTLEMENT.

EXAMPLES.

1. On demand, I promise to pay WILLIAM CARTER, or order, five hundred dollars, with interest; value received. Hartford, May 7, 1821.

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What is due June 1, 1824 ?

Principal on interest from May 7, 1821,

Interest to Sept. 19, 1822, (1 yr. 4 mo. 12 d.)

$500.00

41.00

$541.00

11.70

Amount,

Payment, April 29, 1822, less than int. due, $23.29

Do. July 13, 1822,

do.

Do. Sept. 19, 1822, greater than int. due, 125.51

Sum of payments,

$160.50

$380.50

6.849

Amount,

Due Sept. 19, 1822, forming a new principal,
Interest to Jan. 7, 1823, (3 mo. 18 d.)

Payment, Jan. 7, 1823, greater than int. due,
Due Jan. 7, 1823, forming a new principal,
Interest to Nov. 25, 1823, (10 mo. 18 d.)

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$387.349

125.50

$261.849 13.878

Amount,

$275.727

$5.50

100.63

$106.13

Due Nov. 25, 1823, forming a new principal,
Interest to settlement, June 1, 1824, (6 mo. 6 d)=

$169.597

5.257+

Balance due June 1, 1824,

$174.854

2. Value received, I promise to pay ROBERT F. BARNARD, or order, five hundred dollars, with interest. Sheffield, Feb. 1, 1820,

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3. For value received, I promise to pay D. E. BARTLETT, one thousand dollars, with interest. New-Haven, May 9, 1825.

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Aug. 9, 1828,

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How much remains due May 21, 1829 ?.

This rule is very erroneous in principle, for, though it never suffers any part of the interest of the note to become incorporated with the principal, and thus openly to draw interest, yet it "applies the payments to keep down the interest," without suffering them to infringe, in the least, on the principal, until they exceed the interest due. In this way, not only does the debtor lose that interest on his payment which he might have had, had he retained the money, but the creditor gains the same interest, while the full principal of the note is still drawing interest. The creditor, therefore, draws interest on the interest paid, and on the principal likewise, while the debtor is in fact the person from whom this interest ultimately comes. This is obviously Compound Interest. Very similar but somewhat better, is the following,

CONNECTICUT RULE. 1. FIND THE AMOUNT OF THE PRINCIPAL TO THE TIME OF THE FIRST PAYMENT, (IF IT BE A YEAR OR MORE `AFTER INTEREST COMMENCED) AND SUBTRACT

THIS PAYMENT FROM IT.

II. THE REMAINDER WILL BE A NEW PRINCIPAL ON WHICH CALCULATE THE AMOUNT TO THE NEXT PAYMENT, AND SUPTRACT; AND SO ON, FROM PAYMENT TO PAYMENT, UNTIL THEY ARE ALL EMPLOYED, PROVIDED A YEAR OR MORE INTERVENES, BETWEEN EACH TWO PAYMENTS.

II. BUT, IF THE INTERVENING TIME BE LESS THAN A YEAR, FIND THE AMOUNT OF THE LAST PRINCIPAL FOR A YEAR, AND OF THE PAYMENT UP TO THE SAME TIME, AND SUBTRACT THE LATTER FROM THE FORMER. IF, HOWEVER, A YEAR OVERRUNS THE TIME OF SETTLEMENT, FIND THE AMOUNTS UP TO THAT TIME, INSTEAD OF FOR A YEAR.

IV. IF ANY REMAINDER, AFTER SUBTRACTION, BE GREATER THAN THE PRECEDING PRINCIPAL, THEN THE PRECEDING PRINCIPAL IS TO BE CONTINUED AS THE PRINCIPAL FOR THE SUCCEEDING TIME, INSTEAD OF THE REMAINDER; AND THE DIFFERENCE TO BE REGARDED AS SO MUCH UNPAID INTEREST.

NOTE. Of course, this "unpaid interest" must be added to the principal, at the time of the next payment.

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236

$1,000.00

CENTAGE.

Hartford, Jan. 4, 1826.

On demand, I promise to pay H. ALDEN, or order, one thousand dollars, with interest; value received.

THOMAS FAIRWEATHER,

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Due June 29, 1828, forming a new principal,

$438.346

Interest for 1 year,

26.300+

Amount for 1 year,

$464.646

Amount of $260.00 from Nov. 14, 1828, to June

29, 1829, (7) mo.)

269.750

Due June 29, 1829, forming a new principal,

$194.896

Interest to Dec. 29, 1831, (30 mo.)

29.234

Amount,

$224.130

Fourth payment, Dec. 29, 1831,

25.00

Remainder due, greater than last principal,

$199.13

Int. on $194.896 (prin. continued) to June 14,

1832, (5 mo.)

Whole amount due June 14, 1832,

5.36$204.49

2. For value received, I promise to pay WILSON WHITON, Jr., or order, eight hundred and seventy-five dollars, with interest. Hingham, Jan. 10, 1821.

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3. By each of the preceding rules, find the balance due on the following note.

On demand, I promise to pay GEORGE F. OLMSTED, twenty thou sand dollars, with interest; value received. Hartford, July 1, 1825. $20,000.

THOMAS THRIFTY.

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