INTEREST

Just now, there was a major blackout at my neighbourhood. I heard there was a cable burned somewhere in Pulau Serai... That's kinda far from my place.. oh well... Nevertheless, we had a romantic dinner.. Candle light dinner to be exact... Cute.

Then, I started to...
This is what I found after I 'korek-korek' my abah's stuffs... Ahax.. I guess, this is how they make INTEREST from our INTEREST..bankers like to bake our money...ahahahaha....

Interest can be defined as:

a) Extra money EARNED when certain amount of money is INVESTED / DEPOSITED

b) Extra money PAID when certain amount of money is BORROWED.


Islamic banking system vs. Secular banking system:

The major difference:-

Islamic banking system is based on the PROFIT SHARING method (which is calculated based on the ACTUAL PERFORMANCE of the bank), whereas the Secular banking system is based on the FIXED INTEREST RATE (which is calculated based on the PREDICTION PERFORMANCE).

Basically there r two types of interest:

a) Simple interest

[ I = P r t ]
I : simple interest
P : principal/original amount of money borrowed or invested
r : interest rate per year
t : term or period in years

b) Compound interest

Loan. Sometimes the time period of a loan is indicated by the beginning date and the due date. In the calculation of number of days between the two given dates, we have two concepts:

1. EXACT TIME - it is the exact number of days between two given dates.
2. Approximate time - it assumes a month has 30 days.

If the time period of the loan is in term of days, then using simple interest formula requires that the rate ALSO be expressed as a rate per day.

I = P r t

1. Ordinary simple interest by using

t = given numbers of days / 360

2. Exact simple interest by using

t = given number of days / 365 or 366 days

FOUR METHODS for computing simple interest:

a) exact time and ordinary simple interest - also called 'BANKER'S RULE'
b) exact time and exact simple interest
c) approximate time and ordinary simple interest
d) approximate time and exact simple interest


COMPOUND INTEREST

Previously, we studied about the simple interest where interest is earned from the original principal and computed only once. Alternatively, the interest can be compounded. In compounding, we calculate the interest periodically over the borrowing money and add it to the principal. The adjusted principal (old principal plus interest) then becomes the principal for the next calculation of interest.

This process of adding interest to the principal before interest is calculated for the next period is called compounding interest. In compounding interest, we say that, 'we earn interest on our interest'.

The final sum at the end of the borrowing period is called the COMPOUND AMOUNT. Therefore, COMPOUND INTEREST is the difference between the original principle and the compound amount.

Terms for understanding compound interest:
a) Original principle (P) : The beginning value of loan or investment.
b) Frequency of conversions (m) : The number of times interest is calculated in a year.
c) Interest period : Length of time in which interest is calculated. The period for computing interest is usually at regularly stated intervals such as annually, semiannually, quarterly or monthly.
- Compounded annually : interest calculated on balance once a year.
- Compounded semiannually : interest calculated on balance every 6 months.
- Compounded quarterly : interest calculated on balance every 3 months.
- Compounded monthly : interest calculated on balance monthly.

d) Nominal interest rate (j) : The stated annual interest rate.
e) Rate per interest period (i) : Nominal interest rate divided by frequency of conversions.
i = j / m

f) Total number of interest (n) : Number of times interest is calculated during the term of the loan or investment. Given number of years times frequence of conversions.
n = t X m

...and then there r calculations for Compound Amount (Future Value) and Present Value. It's kinda complicated tho..haha...

This subject INTERESTS me! tettt...

The truth is..I am bored..kuang3..

Toodles..;p