Question

A method of calculating interest using 365-day year is the(?) method.

(Quantitative literacy)

Answer 1

Explanation:

To calculate the interest payment under the 365/360 method, banks multiply the stated interest rate by 365, then divide by 360. However, due to the numerator and denominator not matching, the 365/360 method has been held to increase the effective interest rate by 0.01389 in a non-leap year.