Simple Interest Calculate Question

by Robert Fong
(Rancho Palos Verdes,CA., USA)

Please give me the equation for the simple interest calculator.

Interest Paid

by Anonymos

If you've got a loan for 100K at 4.8% annual interest (simple interest), shouldnt that mean you pay $4800 of interest a year, which would mean in 10 years you pay $48K of interest? if so, then why do all the loan repayment calculators keep telling me over 10 years the monthly payment would be $1050--this would only end up being $26K of interest paid.

Thank you!

Answer

The reason that the interest paid is lower is because you are only paying interest on the amount owed in any given month and the amount owed is declining.

An approximation that will get you very close to the right answer is to calculate the interest on the average amount owed. If the beginning loan balance is 100k and the final balance at the end of 10 years is 0k then the average is 50k. 50k x 4.8% x 10 years = 24k. This is very close to the 26k that you calculated. For a more in depth understanding consider this loan amortization schedule.

COMPOUND INTEREST

by OLUFEMI
(lAGOS, NIGERIA)

What is today's value of a debt of 7,761,010 @ 15% p.a. owed from 11th July,2001?

Answer

Assuming that interest is compounded once per year and no payments have been made, the loan would have a payoff of 42,019,574. According to the rule of 72, the 15% interest rate will approximately double the principle every 5 years.