Math Is Fun Forum

beluga

Member

Registered: 2010-06-26

Posts: 8

Calculating the rate: Financial Mathematics

Hi

The following table shows Joy's transactions over the last 3 months relating to a loan taken out on January 1. The interest is calculated at the end of each month and repayments are made at the end of each month.

Jan         8000         60         500       p
Feb        7560         56.70     500       7116.70
March    7116.70      q            r         6517.11

(Note: The above is suppose to be a table but I had trouble downloading an attachment)

(a) calculate p: I got 7560

(b) calculate the annual rate of interest applied to months JAN and Feb

(c) Calculate q and hence r

I don't know how to calculate the rate. Can you please provide me a step by step process on how to find the rate and the formulas to use.

thank you

Last edited by beluga (2010-10-29 00:31:04)

Bob

Administrator

Registered: 2010-06-20

Posts: 10,621

Re: Calculating the rate: Financial Mathematics

Hi beluga

Sorry no response earlier.  I've been off-line for a while.

I've put your table into Excel with column headings.  I think these are correct for the values shown.(see picture below)

I agree with your value for 'p'

To calculate the interest over the month you need to do

For Jan = 0.75
and for Feb = 0.75

The annual rate is the monthly rate applied 12 times over.

(i) Convert the monthly percentage to a multiplier

= 1.0075

(ii) Raise to power 12

= 1.093807

(iii) Convert back to a percentage with

= 9.38069

(iii)  But use the monthly rate to calculate q

(iv) and r = loan at start + interest (q) - loan at end

Please post back when you have read this and say if you need more help.

Bob

Last edited by Bob (2010-11-02 02:21:18)

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