POOL Side - Library > Interest Introduction

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Interest Introduction

The Amount web page will solve most interest related problems. Some problems may require getting an intermediate answer and then using that answer as input for the next calculation. The results are based on Engineering Economy formulas and may not use the same method as used in some financial institutions ("Daily interest, posted quarterly"). By U.S. law, financial transactions must disclose the cost of money, but most financial disclosures quote total figures that cannot be easily compared or understood (done by intent). You can solve for interest rate and/or compounding time on the Rate/Time web page.

Go to the Example web page to show a set of problems with their solutions, the Formula web page to display the formulas used, and the Logarithm web page for a background on logarithms. The Code web page will display the supporting javascript files and the show/hide code link at the top of each page will display the individual page code as rendered by your browser. Please visit the show-code web page to learn how to make a favorites link to show rendered code on any page you visit.

Q. What is interest? A. The time value of money.
Q. What is Compound Interest? A. Interest that is added to the principal.
Q. Then what is Simple Interest? A. Interest applied only to the original amount even if partial payments are made.
Q. How do we use interest to decide which investment or transaction is better? A. Economic analysis.
Q. How do I solve irregular deposits at irregular periods. A. One at a time.

On the Amount web page there are four required input values:

Working amount - may be initial, periodic, or future (dollars)
Periods per year - number of times to compound interest (whole number 1 to 365)
Total periods - investment time (whole number)
Interest rate - annual percentage rate in percent (not annual yield)

These values may contain the symbols ( $ , % . ). Both input and solution values are rounded to whole numbers, cents, or thousandths of a percent and reformatted. All values must be zero (blank) or a positive value. If you set interest to zero, then you are not considering the time value of money. Clicking on the "Calculate" button will solve 10 problems and show the solutions. Clicking on the "More to Do" button will allow you to modify the inputs again. Clicking on the "Reset" button will erase all inputs and solutions and start a new problem set.

Please contact me with your comments, contributions, or corrections.

POOL Side

rev. Saturday, July 14, 2007