Blueprint Problem: Interest Calculations and Installment Notes Interest Calculations Three items of information are needed to calculate interest: the principal, the rate, and the time. Of the three items, the time aspect is the most difficult to understand. The rate of interest is always stated on an annual basis The formula for calculating interest is: Principal x Rate xTime If the time is a portion of a year, such as three months, the Time aspect of the formula must be stated as a portion of a year a v. A period of three months would be stated as 3/12 a If interest is calculated for a full year, the Time element may be represented as 12/12. v. Also remember that if the end of a fiscal period occurs before interest is paid, an entry must be made to record accrued interest expense and interest payable Hide Feedback Correct Check My Work Feedback Hover over the underlined definitions to understand their relationships. APPLY THE CONCEPTS: Calculating interest For each of the following loan terms, calculate the amount of interest as directed in the question: A. Calculate the annual interest that will be paid on a $62,000, 5.5%, loan. Enter the interest rate as a percent (not a decimal). When required, round all answers to nearest cent. Interest s 62,000 5.5 x 12 O, 12 3410 B. Calculate the monthly interest that will be paid on a $77,000, 3% loan. Interest s 77,000 x 3 x 1 12 192.5