21. What is the difference between the exact interest and the common interest on $657 for 90 da. at 5% ? 22. How long will it take $1440 to earn $244.80 interest at 41% ? 23. What sum must a lady have invested at 5% per annum to yield her an income of $125 a month? COMPOUND INTEREST 314. Compound interest is interest computed by adding the unpaid interest to the principal at regular interest periods, and taking the sum for a new principal for each succeeding interest period. 315. Simple interest is interest computed on the original principal for the entire time. In ordinary business transactions, "with interest" is understood to mean simple interest, although the debt may run for several years. It is customary to insert in contracts for the payment of interest, where the debt runs for a longer period than one year, a provision that the interest shall be paid at regular periods, usually of three months, six months, or one year. This is especially true in the case of insurance companies, loan associations, and other institutions doing a large loan business; so that they are enabled to compute their income on a compound interest basis by loaning the interest as fast as it is paid in. Savings banks and trust companies generally allow compound interest on all deposits remaining for a full interest period, which is usually three or six months. 316. Written 1. Find the compound interest of $350 for 2 yr. and 6 mo. at 6%. $350.00 Principal Solution 21.00 Interest for 1st year $371.00 Amount taken as new principal $393.26 Amount used as new principal 11.80 Interest for 6 mo. $405.06 Amount for 2 yr. 6 mo. 350.00 1st principal $55.06 Compound interest for 2 yr. 6 mo. NOTE 1.- When the interest is compounded semi-annually, the rate for each period is one half the annual rate; when quarterly, one fourth. When no interest period is mentioned, interest is compounded annually. NOTE 2. In actual practice, compound interest is computed by means of compound interest tables similar to that on page 410. The table gives the amounts of one dollar for from one to twenty periods, at various rates for each period. The required amount is obtained by multiplying the amount of one dollar, for the required number of interest periods, at the given rate, by the given principal. If the compound interest is desired, omit the 1 at the left of the decimal point in the multiplicand. 2. What is the compound interest of $830 for 3 years at 5%? 3. What is the amount of $650 for 4 years at 4% interest, compounded semiannually? 4. What is the compound interest of $365 for 2 yr. 7 mo. 18 da. at 6%, compounded semiannually? 5. What is the compound interest on $640 for 4 years at 5%? 6. What is the interest, compounded quarterly, on $538.25 for 2 yr. 6 mo., rate 4 % ? 7. What is the interest, compounded annually, on $683.48 for 4 years at 6% ? 8. What is the compound interest on $437.50, for 3 yr. 6 mo., at 5 %, compounded semiannually? PROMISSORY NOTES 317. A promissory note is a written promise made by one party to pay absolutely a specified sum of money to another party at a certain time. Since the term "note" in business transactions always refers to a promissory note, we shall henceforth omit the word "promissory" in speaking of a note. FORMS OF NOTES 318. The following forms illustrate various kinds of notes: |