Concepts
Capital (principal, pääoma) is the amount of money, for which the interest is paid for: a loan, a deposit, an investment or a mature bill.
Interest (=korko) is either paid or received compensation of the loan money. It is given in currency. The rate is the same in percentage.
Interest rate (=korkokanta) is the ratio of the interest per time. It is given in percentage and it is usually as annual interest.
(Interest) time (=korkoaika) is the number of days between two dates for mature interest. The first date is not calculated to the interest time but the last date is.
If interest rate is given as annual interest, then interest time must be given in years. There are three possible case for solving this:
- real/360: There are 360 days in a year and the number of days is actual number of days. (ECB)
- real/365 (or 366): Actual number of days in a year and the number of days is actual number of days. (Typical in Finland for savings)
- 30/360: There are 30 days in a month and 360 in a year. The least used method but it is used for calculating residual tax.
Example 1.
A short-term credit was drawn January 20 and was paid at once the same year in March 15 (not a leap-year). What is the interest time in years in each cases.
| | 1) real/360 | 2) real/365 | 3) 30/360 |
| January | 31-20 =11 | 31-20 =11 | 30-20 =10 |
| February | 28 | 28 | 30 |
| March | 15 | 15 | 15 |
| Total | 54 | 54 | 55 |
| interest time | | |