 Sam
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Joined: 21 May 2005
Posts: 286
Location: CALIFORNIA
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 Posted: Tue Apr 06, 2004 5:02 pm Post subject: Are loans and mortgages calculated using compound interest? |
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Loans and mortgages are calculated using compound interest. Compound interest is the interest paid on the original principal and on the accrued past interest based on an amortization schedule.
The compound interest is calculated using the formulae given below:
A = P (1+r) n where,
P = Principal amount borrowed.
A = Amount of money accumulated after n years.
r = Annual rate of interest.
n = Number of years for which the sum is borrowed.
Growth via compound interest is exponential. The fixed rate compound interest is calculated by a method in which the outstanding loan balance grows exponentially with time. But variable rate compound interest does not grow exponentially with time. |
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