Math 702 Lesson 3 The Range Of Data / Lesson 4 Calculating Interest For Months Worksheet Page 6
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Calculating Interest for Months
The interest formula, i=prt, is used for calculating interest on savings and loans. In this formula, i stands
for interest, p stands for principal, r stands for rate, and t stands for time in years. However, interest on
savings is often calculated by the month rather than the year, and the length of many short-term loans is
expressed in months, such as a 42-month CD (certificate of deposit). In this case, we must convert months
to fractions of a year or the decimal equivalents of these fractions.
Note the following equivalents when using business years:
1
7
12
12
1 month =
year
7 months =
year
1
2
6
3
2 months =
year
8 months =
year
1
3
4
4
3 months =
year (or 0.25 year)
9 months =
year (or 0.75 year)
1
5
3
6
4 months =
year
10 months =
year
5
11
12
12
5 months =
year
11 months =
year
1
2
6 months =
year (or 0.5 year)
12 months = 1 year
To find interest on $1,200 of a 7-month CD earning 4.25%, first convert 7 months to a fraction. Then
use the simple interest formula, i=prt.
7
Convert months to years:
7 months =
12
year
Use the formula:
i = prt
7
Substitute numbers for the variables:
i = $1,200 × 0.0425 ×
12
Calculator Hint
Solve:
i = $29.75
When using a calculator for
fractions of a month, multiply the whole
numbers, and the numerator of the
fraction. Then divide that answer by the
The CD will earn $29.75 in seven months.
denominator of the fraction.
Add the principal and the interest to find out how much
Example
the CD will be worth when it matures.
$500 loaned out at 2% for 5 months
$1,200 + 29.75 = $1,229.75
5
500 × 0.02 ×
12
(500 × 0.02 × 5) ÷ 12 = $4.17
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