Which formula yields daily interest according to the given rule?

Which formula yields daily interest according to the given rule?

• A. Interest rate X loan amount ÷ 360
• B. Interest rate X loan amount ÷ 12
• C. Finance charge ÷ 360
• D. Loan amount ÷ 360

Answer: (A)

Daily interest comes from applying the annual interest rate to the loan balance and prorating it over a 360-day year. So you take the rate times the loan amount and divide by 360. This converts the yearly charge into a one-day amount, using the common 360-day convention. Dividing by 12 would yield a monthly amount, not a daily one. Using the finance charge divided by 360 would give a daily portion of the total cost, but the rule emphasizes using the rate and the loan amount. Dividing the loan amount by 360 ignores the interest rate entirely, so it wouldn’t represent daily interest.

Daily interest comes from applying the annual interest rate to the loan balance and prorating it over a 360-day year. So you take the rate times the loan amount and divide by 360. This converts the yearly charge into a one-day amount, using the common 360-day convention.

Dividing by 12 would yield a monthly amount, not a daily one. Using the finance charge divided by 360 would give a daily portion of the total cost, but the rule emphasizes using the rate and the loan amount. Dividing the loan amount by 360 ignores the interest rate entirely, so it wouldn’t represent daily interest.