Lessons · Law foundations · interest on a judgment
Interest on a judgment, at the rate the order gives
Simple interest is the amount times the rate times the fraction of a year it has run for, and the rate and the year length both come from the order or the rule in front of you.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
A client asks what the judgment is worth if it is paid next month rather than today. Answering that in one line, from the figures on the order, is a small piece of arithmetic that makes the office look like it knows what it holds.
How to think about it
Take it in two steps, always. First the interest for a whole year, then the fraction of a year that has actually passed. Keep the year length the order gives, because it is not always the same.
Worked example
Judgment $30,000, rate 8 percent a year, 365-day year, 90 days elapsed.Four numbers, all from the order or the rule; none from memory.
A full year: $30,000 times 0.08 is $2,400.Interest for one whole year, before any fraction is taken.
The fraction: 90 days out of 365.Days elapsed over days in the year, as the rule defines the year.
$2,400 times 90 divided by 365 is $591.78.Rounded to cents at the end and not before, or the pennies drift.
Your turn
A judgment of $50,000 carries 6 percent a year. Write the interest for one full year.
$50,000 at 6 percent for one full year: $
Solve one, graded on the server
The trap
Using a 360-day year because a form somewhere did. The year length is part of the rule you were given, and swapping it changes every figure in the letter by about one and a half percent.