Simple interest is a quick and easy method of calculating the interest charge on loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments. There are two kinds of simple interest: ordinary and exact. These two terms use the same formula for solving the simple interest, but they differ on using the time.
Ordinary simple interest is a simple interest that uses 360 days as the equivalent number of days in a year. On the other hand, Exact simple interest is a simple interest that uses an exact number of days in a year which is 365 (or 366 for leap year).
Car loans, amortized monthly, and retailer instalment loans, also calculated monthly, are examples of simple interest; as the loan balance dips with each monthly payment, so does the interest. Certificates of deposit (CDs) pay a specific amount in interest on a set date, representing simple interest. Chapter 10 provides the basic idea about simple interest, principal, rate of interest, period and amount.