Step 5: Next, calculate the amount at the end of the loan tenure based on the outstanding loan amount (step 1), interest rate (step 2), tenure of the loan (step 3), and the number of compounding per year (step 4) as shown below. Step 4: Next, determine the number of compounding done per year, denoted’ by ‘n.’ The tenure of the loan is denoted by ‘t.’ Step 3: Next, determine the tenure of the loan or the period for which the loan has been extended. Step 2: Next, determine the interest rate to be paid by the borrower, which is denoted by ‘r.’ Step 1: Firstly, determine the outstanding loan amount extended to the borrower, denoted by ‘P.’ Step 4: Finally, the formula for simple interest can be derived as a product of the outstanding loan amount (step 1), interest rate (step 2), and tenure of the loan (step 3), as shown below.įollowing are the steps to calculate Compound Interest: Help Monty to decide which is a cheaper option for him.
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