When interest is calculated for periods shorter than a year,the formula to calculate interest is:
A)I = P × R × T,where I = interest calculated,P = principal,R = annual interest rate,and T = number of months.
B)I = P × R × T,where I = interest calculated,P = principal,R = annual interest rate,and T = (number of months ÷ 12).
C)I = P × R × T,where I = interest calculated,P = principal,R = monthly interest rate,and T = (number of months ÷ 12).
D)I = (MV − P)/T,where I = interest calculated,MV = maturity value,P = principal and T = number of months.

Question

Quizplus · Accepted Answer

Because interest rates are always stated as an annual percentage even if the note is for less than a year,the time period is the portion of a year for which interest is calculated.Ask yourself how many months out of 12 or how many days out of 365 the interest period covers.As such,in the interest equation,T equals the number of months ÷ 12.

When Interest Is Calculated for Periods Shorter Than a Year,the