Understanding the Mathematics of Personal Finance

PRORATION—WORKING INSIDE A COMPOUNDING INTERVAL

Suppose I want to pay off a loan 4 months and 20 days after taking the loan.[7] The bank isn’t going to just use the results of the fourth compounding interval calculation and give me the interest they earned in the last 20 days. On the other hand, I don’t think it’ s fair for the bank to use the fifth compounding interval calculation and charge me 10 days’ worth of interest that the bank hasn’t earned.

Let’s say that there are 30 days in the current month. Take the interest rate per

month ^ R j and divide it by 30, giving us an interest rate per day, then we multiply

Подпись: eff Подпись: 20 ( R 301 y Подпись: 20 f 0.1 30112 Подпись: 0.00556.

this by the number of days, giving us an effective interest rate for the 20 days of the month:

The interest is just the above number times the balance after 4 months. The balance as of 20 days after the fourth payment is therefore $10,337.52 + 20(0.000278) ($10,337.52) = $10,394.95.

The procedure is referred to as prorating; you convert the monthly interest rate to an effective daily rate and then calculate the interest earned in the appropriate number of days.5

On my spreadsheet Ch2CompountInterest. xls, click on the Prorate tab. To the left of the green line you’ll see three new entries: number of days in month, day of proration, and payoff month number. For the example above, using the same $10,000 loan as in previous examples, enter 30, 20, and 4 for these variables, respectively.

To the right of the green line you’ll see the same columns as in the Basic tab. On the top row, you’ll see the daily interest rate calculated. Then, look at the new column, payoff. This column shows the payoff number for the twentieth day of a 30-day month after the fourth payment.

Добавить комментарий

Understanding the Mathematics of Personal Finance

PAYING OFF A LOAN VERY SLOWLY

This section uses a little math, but I’ll go through it slowly in small steps. As with the previous section, this section is not necessary if you don’t want to …

Taxation and Inflation

John Lennon once said, “Life is what happens to you while you’re busy making other plans.” Both taxation and inflation, it seems, are parts of life—they happen to you while …

PARI-MUTUEL BETTING

The pari-mutuel machine system used at race tracks offers a different approach to gambling. A roulette wheel owner is never sure what his or her daily operating cost will be; …

Как с нами связаться:

Украина:
г.Александрия
тел./факс +38 05235  77193 Бухгалтерия

+38 050 457 13 30 — Рашид - продажи новинок
e-mail: msd@msd.com.ua
Схема проезда к производственному офису:
Схема проезда к МСД

Партнеры МСД

Контакты для заказов оборудования:

Внимание! На этом сайте большинство материалов - техническая литература в помощь предпринимателю. Так же большинство производственного оборудования сегодня не актуально. Уточнить можно по почте: Эл. почта: msd@msd.com.ua

+38 050 512 1194 Александр
- телефон для консультаций и заказов спец.оборудования, дробилок, уловителей, дражираторов, гереторных насосов и инженерных решений.