MA170 Lecture Notes - Lecture 2: Interest, Discounting
Document Summary
S = p + i = p + p rt = p (1 + rt) . The factor 1 + rt is the accumulation factor at a simple interest rate r over t years. If the time is given in days, there are two methods to determine the amount of time in years t: Ordinary interest (banker"s rule): t = number of days. Ordinary interest is always greater than exact advantage to the lender; disadvantage for the borrower. In canada, the starting date is usually counted and not the ending date, but it is easier to do the opposite and the text does this (using the table in the back of the book). To determine the number of days this way, we can simply subtract the corresponding serial numbers for the days. The discounted value of s at a simple interest rate of r is p = 1 is called the discount factor at a simple interest rate of r.
