July 27, 2010
How Do He Calculate Finance Charges For Gaining Very Good Profit In Option Market
Having some knowledge of how to calculate finance charges is always a beautiful thing. Most lenders, as we all know, will do this for you, but it can helpful to be able to check the math yourself. It is important, however, to understand that what is introduced here is a basic procedure for calculating finance charges and your lender may be using a more complicated process. There may even be other issues attached along with your loan which might affect the charges.
In simple interest deals, the amount of the interest (expressed as a percentage) does not change over the life of the loan. This is often called flat rate or fixed interest.
In simple interest deals, the amount of the interest (expressed as a percentage) does not change over the life of the loan. This is often called flat rate or fixed interest.
The simple interest formula is as follows:
Interest = Principal Rate Time
Interest is the total amount of interest paid. Principal is the amount lent or borrowed.
Rate is the percentage of the principal charged as interest each year.
To do your math, the rate must be expressed as a decimal, so percentages must be divided by 100. For eg, if the rate is 18%, then use 18/100 or 0.18 in the formula.
Time is the time in years of the loan.
The simple interest formula is often abbreviated:
I = P R T
Simple interest math issues can be used for borrowing or for lending. The same formulas are used in both cases.
When money is borrowed, the total amount to be paid back equals the principal borrowed and the interest charge:
Total repayments = principal + interest
Usually the money is paid back in regular installments, either monthly or weekly. To calculate the regular payment amounts, you divide the total amount to be repaid by the number of months (or weeks) of the loan.
To convert the loan period, ‘T’, from years to months, you multiply it by 12. To convert ‘T’ to weeks, you multiply by 52, since there’s 52 weeks in a year.
Here is an example issue to explore how this works.
Example:
A single mother purchases a used car by obtaining a very simple interest loan. The car costs $1500, and the interest rate that she is being charged on the loan is 12%. The car loan is to be paid back in weekly installments over a period of two years. Here is how you answer these questions:
1. What is the amount of interest paid over the 2 years?
2. What is the total amount to be paid back?
3. What is the every week payment amount?
You got: principal: ‘P’ = $1500, rate of interest: ‘R’ = 12% = 0.12, repayment time: ‘T’ = 2 years.
Step 1: Find the amount of interest paid.
Interest: ‘I’ = PRT
= 1500 0.12 2
= $360
Step 2: Find the total amount to be paid back.
Total repayments = principal + interest
= $1500 + $360
= $1860
Step 3: Calculate the weekly payment amount.
Every week payment amount = total repayments divided by loan period, T, in weeks. In such case, $1860 divided by 104 weeks equals $17.88 per week.
Calculating simple finance charges is simple four times you have done some more practice with the formulas.
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