Not Baffled - Solved


Mohan Pawar wrote:
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Rod wrote:
"6E656F" <6e656f@xxxxxxxxx> wrote in message
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(1+0.0775)^(2/12)=1.01252.

I am trying to figure out what the hell this is.



two months interest at 7.75% per year is 1.252%

.
That was very fast. Those people called Actuaries has given
formulae
like this...

(1+i)^(n/12) where 'i' is rate of interest i.e 7.75% per annum
and
'n'
for number of months.

But in example given above, they arrived at 1.01252 and not
1.1252.
How they arrived at 1.01252 ?

Given annual interest rate = 7.75%=0.0775

If loan P = $1.00 and loan period=2 months, then

amount due at the end of 2nd month = 1* (1+0.0775)^(2/12)=1.01252.

In general, worth of P dollars after n periods of time at interest
rate of i% per period is S, where
S=P*[1+(i/100)]^n

You have i=7.75% per year and hence your n must be in years. Your
example assumes loan P=$1 for period of 2 months=2/12
years=0.1667.
So 0.01252 is practically acceptable amount.
Pardon the copy paste typo: "So 1.01252 is practically acceptable
amount."

If the monthly interest was assumed for a $1 loan, then
i(monthly)=0.0775/(12*100)=0.00646 and n=2,

S=1*[1+(7.75/1200)]^2=1.01296 (not exactly 0.01252 because now
interest charged monthly)
Pardon the copy paste typo: "(not exactly 1.01252 because now
interest charged monthly)."

..
Actually this confusion is because of rate of interest. They clearly
mention it 7.75% but while calculating they take it as 7.50%.

0.075*0.16666666666666...= 0.01252.

Also the way formulae is written is wrong.

Thanks.

.

Relevant Pages

  • Re: Baffled
    ... Rod wrote: ... I am trying to figure out what the hell this is. ... If loan P = $1.00 and loan period=2 months, ... So 0.01252 is practically acceptable amount. ...
    (sci.math)
  • Re: Baffled
    ... If loan P = $1.00 and loan period=2 months, ... Best regards ... Mohan Pawar ... MP Classes LLC ...
    (sci.math)