Question from Kenneth:

Hello:

I read about this method in an old business mathematics book and was curious about how it works to produce the correct answer.

"Percent-day method is based on 360 days‚ time and 1% interest. Any interest rate multiplied by any number of days is equal to so many %-days."
Example: 82 days at 5% equals 410%-days.

"The rest of the calculation to find interest using his method involves multiplying the amount of interest at 1% by the ratio of %-days to 360."

Here is an example calculation: $720 for 92 days at 7% = 7% X 92 days = 644%-days.

644/360 X $7.20(1% for 360 days) = $12.88

Can you explain the logic of this calculation? I can understand that days multiplied by percent equals %-days, but I do not understand how $720 becomes $7.20 and why is (1% for 360 days) used?

In other words, why does the method involve multiplying the amount of interest at 1% by the ratio of %-days to 360?

What became of the 92 days?

I thank you for your reply.