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Parameters
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1. Loan Amount
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The total amout that a borrower
borrows.
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2. Interest Rate/Annual Percentage
Rate(APR)
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The annual interest rate
applicable to the loan quoted by the lender of the fund.
Interest rates may be quoted on annual, semiannual, quarterly and monthly
basis.
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3. Maturity
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The tenure for which the loan is
taken. Maturity is often quoted in years and months.
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Case
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A man wants to purchase a new car costing $15000. He wants to
fund his purchase from a local bank who quotes an interest rate of 9%.
Furthermore, the interest has to be paid twice every year (semiannual
compounding) for a period of 10 years and 6 months.
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The
EMI payments for this loan is calculated as follows:
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a. Input loan
amount (i.e $15000) in the loan amount input cell of the calculator. Change
currency from the drop down list.
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b. Input 9 in the interest rate
input cell corresponding to the interest rate charged by the bank. Change the
compounding method from the drop down list
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c. Input 10 in
the years input cell and 6 in the months input cell.
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d. Notice that the equivalent
periodic interest rate and number of payment periods are automatically
calculated.
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e. The EMI for the loan
application is also calculated automatically on the basis of the information
generated in (d).
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