January 10, 2007

Answer: use the CUMPRINC function in Excel Say you take a 10-year lease for 100,000 at an interest rate (IRR) of 10%, paid annually. The installment for this lease is 16,275. You can calculate this using the PMT function in Excel: PMT(10%, 10, 100000) = -16275 You've made 5 payments over 5 years. At this point, if you decide you want to repay the full lease, how much do you have to repay? In other words, what's the principal outstanding after 5 years? ...

When I moved to the UK, I was surprised to see mortgages advertised for 4.9%. ICICI Bank's HiSAVE account was offering 5.15% interest on savings. So if I borrowed at 4.9% and invested at 5.15%, I can make money for nothing! The catch, of course, is that the mortgage was 4.9% APR. Annual Percentage Rate is the total interest you pay on the initial amount you borrow, divided by the number of years. This has nothing to do with the Internal Rate of Return, or the regular interest rate we know of. ...