Quiz -- Personal Finance 101

<div class='quotetop'>QUOTE(EricGo @ Aug 30 2007, 06:44 PM) [snapback]504575[/snapback]</div>

I'm not certain I see the issue. The interest is compounded daily, but starting with only $100 means that your daily interest will be 5 cents for the first six plus months of the year. Assuming "daily" means 365 days in the year, I think your payoff should be $119.94. Have I missed something? (It wouldn't be the first time!!)

 

<div class='quotetop'>QUOTE(EricGo @ Aug 30 2007, 06:44 PM) [snapback]504575[/snapback]</div>

It depends on the day you pay it off - since the interest compounds daily, the amount will increase every day. I believe the daily rate is .1824/365 Mulitply this fraction by the number of days until you pay the balance (days) to get 100*(1 exp(0.01824*days/365)) .

Or something like that.

What ever it is, do not leave balances to pay if at all possible.

 

<div class='quotetop'>QUOTE(EricGo @ Aug 30 2007, 04:44 PM) [snapback]504575[/snapback]</div>

I get $119.94 with a 365 day year. Their explaination is confusing to say the lease, what the heck is a feature?

Wildkow

 

<div class='quotetop'>QUOTE(EricGo @ Aug 30 2007, 04:44 PM) [snapback]504575[/snapback]</div>

Is the answer 100 * (1+(.1824/365))^365 = $120.004

When I was a kid the S&L that had my bank account advertised 5.25% compounded daily, and that was the way you would calculate the APR.

 

The answer is impossible to obtain without knowing whether the fiscal year being used is calendar year or business days. If calendar year divide 18.24% by 365 to get the daily periodic rate. If business days divide 18.24% by roughtly 220 to get the daily periodic rate.

However, if they apply a business days daily rate on weekends and holidays, they're committing fraud, so it's more likely they're using calendar year, because I'm SURE they're charging interest every blessed second the FTC let's them get away with (a great deal, too, after 20 years of Republican administrations).

So, lessee - 18.24% / 365 = just under a nickel a day at the beginning, and on the 365th day you'll owe $120.00 almost on the dot, with an extra 39 hundredths of a cent due if you have a hacksaw to cut it with.

MB

 

Unless the bank calculates from the $118.24 for its compounding, where then I get $141.89 (with rounding).

 

<div class='quotetop'>QUOTE(EricGo @ Aug 30 2007, 07:55 PM) [snapback]504615[/snapback]</div>

Wrong? I'm never wrong. Sometimes I'm not quite fully correct. This appears to be one of those times.

My calculation was based on 18.24% as the actual rate -- not 18.24% as the calculated APR. The APR is always going to be different (higher), because it reflects the effective rate across the entire year. An actual percentage rate of 18.15% will yield an APR of 18.24%. Given that rate and using daily compounding for a full 365 days, I see the final amount as coming to $119.84.

 

Plug $100 into cell A1 in Excel. In cell B1 I put =A1*(1+(0.1824/365)) and copied that all the way to cell A365. A365 says $119.94. A366 says $120.00. So the question is: Is 365 or 366 the final payment?

 

I never ask the interest rate.
This is what I want to borrow.
*I want the term to be 60 months
*I want to pay 60 equal payments with no residual payment
*How much is my monthly repayment including all fees.
THAT is all I care about.

When I shop for finance that is all I ask, the interest rate means nothing.

 

<div class='quotetop'>QUOTE(patsparks @ Aug 31 2007, 07:33 AM) [snapback]504865[/snapback]</div>

I never borrow. If I cannot pay, I do without. What I ask is: Are there any fees on the card if I pay my balance in full before the payment deadline?

I need a credit card because nowadays there are places where a debit card won't work (e.g. most car-rental companies). My bank has an obscene rate of interest, but no monthly or annual fees. I pay before it's due, so I never pay interest. And I use the ATM card if I need cash, because on cash advances, the credit card charges interest from the day the cash is taken, and I think it then charges interest on the full balance without waiting for the payment date.

They call people like me deadbeats, for always paying on time and never paying interest. But they still collect a percentage from the merchants. And they give me 1.2% cash back. Of course, we all pay the merchant extra, since the credit card fees are part of his operating expenses. And since the merchant has to sign a contract promising not to charge extra to credit card customers, YOU are paying the merchant his credit-card costs whether you have a card or not.

 

<div class='quotetop'>QUOTE(daniel @ Aug 31 2007, 10:51 AM) [snapback]504918[/snapback]</div>

For that reason, i use my credit card for almost all purchases Might as well make the merchant actually earn the money he's paying me.

Of course, like you i pay everything off in full by the deadline, and never accrue any additional fees or interest on my debts. Of course, this will probably change when i buy a house next year, but that's a carefully calculated debt designed to overall increase my financial footing (by taking the same amount of money i'm paying in rent and actually getting something out of it in the end).

 

<div class='quotetop'>QUOTE(EricGo @ Aug 31 2007, 09:21 AM) [snapback]504859[/snapback]</div>

You are correct (and I am just not quite fully correct, again). I suppose I've seen too many loan documents where the lender is required to specify the defined Annual Percentate Rate which is the full interest charge during a year at the advertized rate.

I had used 18.24% as both the APR and APY (Yield). The first number I came up with was $119.94, which would be the amount owing at the end of day 365 if the 18.24% is applied as a daily periodic rate.

When I went further off the deep end, I assumed the 18.24% was the calculated APR (or, as you pointed out, the annual percentage yield or APY), meaning that the daily periodic rate would be lower. This got me to the number of $119.84.

Upon further review, I'll re-offer the $119.94, based on the language you reported. The number would be higher using the calculation you offered, but the fact is that your bank is going to calculate the interest on a daily periodic basis. This means the amount must be figured, rounded and added daily. Thus, you will not take the "hit" of the miniscule cents that get pulled into the calculus behind the equation you noted.

So. . . If I win . . . What's my prize?

 

<div class='quotetop'>QUOTE(EricGo @ Aug 31 2007, 07:21 AM) [snapback]504859[/snapback]</div>

Continuous compounding is easy to calculate. Just multiply the interest rate by e. So 5% compounded continuously is e * 5% = 13.59%.

The way you calculate this is the limit of (1 + (i/n))^n as n approaches infinity, which if you remember pre-calculus, is e * i.

Edit: The above is wrong, see second post on next page for correction.

 

<div class='quotetop'>QUOTE(EricGo @ Aug 31 2007, 01:55 PM) [snapback]505067[/snapback]</div>

WOOO HOOO!!! :lol: :lol:

And the prize is . .

 

<div class='quotetop'>QUOTE(patsparks @ Aug 31 2007, 09:33 AM) [snapback]504865[/snapback]</div>

If you borrowed $100 under these terms, you'd pay $4.06 a month. I know you said you didn't care, but still that means you'd be giving the lender $143.60 extra for those $100.00.