Anonymous asked in Business & FinanceOther - Business & Finance · 1 decade ago

Why do banks, when they calculate daily compound interest use 360 days instead of 365 days?

good explanation helpful, or a source.

Again, why do banks count a year as 360 days instead of 365 when calculating daily compound interest?

3 Answers

  • Anonymous
    1 decade ago
    Favorite Answer

    "1. Assume a $100,000 note dated June 1 for 90 days at an interest rate of 12 percent. The textbook calculation is as follows:

    $100,000 x (12 / 100) x (90 /360) = $3,000.00

    2. A more precise calculation is as follows:

    $100,000 x (12 / 100) x (90 /365) = $2,958.90

    >>> 3. When large sums are involved, the 360-day method (known as ordinary interest or banker’s rule) yields significantly more interest to the lender. It is used by banks and commercial organizations. <<<

    4. The second method (known as exact interest) is used by the federal government and the Federal Reserve System."

    [ Scroll down about 2/3 of the way on this link ]


    "You may see either of these figures because accountants used a 360-day year to simplify their calculations before computers and calculators became widely available..."

  • Anonymous
    4 years ago

    Nope- the Tanakh uses a lunar calendar linked to a solar calendar- in other words, the months are based on the lunar cycle, but the festivals which are specified by month, have to be in specific seasons. Thus 7 years out of every nineteen, an extra month is added to the lunar calendar to keep it in sync with the solar calendar. However, NONE of these are 360 days in length. This was purely an invention of Christian commentators to try and force the prophecy in Daniel to fit their timeline sinc eotherwise it didn't (it does support the Jewish timeline which states the prophecy refers to the destruction of the second temple and exile of the Jews without nay alterations or creating of new concepts though LOL)

  • 3 years ago

    360 Day Year Interest

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