# Re: Loan repayment: anutter hint

[ Follow Ups ] [ Post Followup ] [ Main Message Board ] [ FAQ ]

Posted by Denis Borris on September 27, 2002 at 14:27:27:

In Reply to: Re: Loan repayment posted by Denis Borris on September 27, 2002 at 03:21:31:

: All you need to worry about here is getting the proper "i";
: 24% annual cpd quarterly = 26.24769....% : (1 + .06)^4.
: So the rate (i) in your monthly payment formula must reflect this;
: you need to find the rate which, if compounded monthly, will result
: in 26.24769%: OK?
: Hint: calculating "effective" rates can be done using a simple "savings account".

Above may be a little "tough" to follow; here's an example:

Interest is 12% annual compounded semi-annually.
As I said, you need the proper "i";

1: (1 + .06)^2 - 1 = 1.1236 - 1 = .1236 (that's effective interest of 12.36% annually).
Note: 2 = number of compounding periods in year

2: Find equivalent rate cpd. monthly (match frequency of payments):
(1 + i)^12 = 1.1236
1 + i = 1.1236^(1/12)
1 + i = 1.0097587...
i = .0096587...

That's the "i" to be used in the payment formula.

Now I'm sure you can do yours!

Name:
E-Mail:

Subject: