Financial Calculator: PerSense

Date: 03/19/2002 at 04:04:17
From: Satadru Sengupta
Subject: Discounting factor in Loan Amortization calculation

Supposing I take out a loan of $7,650,000.00 @ 13.26% p.a. interest 
for 6 years; my rate of interest each month is .1326/12, which equals 
0.01105. Multiplying this figure by $7,650,000.00 would give the 
interest payable on the first month, which is $84,532.50.

However, calculation of the amount I must pay equally from the 1st 
month to the 72nd month is not clear. What I understand is that 
part of the payment I make each month goes toward payment of the 
interest on the current balance, and part of it goes toward paying off 
the principal. 

Can you please explain?

Date: 03/19/2002 at 06:33:07
From: Doctor Mitteldorf
Subject: Re: Discounting factor in Loan Amortization calculation

Dear Satandru,

The calculation can be done by writing an equation that says the 
present value of all payments is equal to the amount of the loan, then 
solving for the payment amount. 

This calculation and many more are implemented in a program I wrote
several years ago, which is no longer distributed commercially, but 
given away free. You can download it from my personal home page here 
at the Math Forum:  

   http://mathforum.org/~josh/   

The program is named Per%Sense.

   "World's most complete (and friendly) financial calculator.
    From simple loan amortization to complex financial planning 
    scenarios. Includes present value and IRR calculator with 
    easy-to-use interface where you fill in a chart and just 
    leave blank the number you want to solve for."

When you run the program, be sure to change the Computational Setting
called "1st interest prepaid at settlement."  By default, this is set 
to "YES."  If you change it to "NO," then interest for the first 
partial period will be spread out over all payments, as you wish.

- Doctor Mitteldorf, The Math Forum
  http://mathforum.org/dr.math/