Example 2: Simple Amount with File Rate of interest
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Example 2: Simple Amount with File Rate of interest |
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Example 2 Scenario
This example builds on Example 1. See entire scenario below for full version.
In the previous example:
| • | we used a Static Rate of interest. |
In this example:
| • | We use a File Rate of interest. |
Demonstrated Features
| ► | Number of amounts menu |
| ► | How to select a file rate of interest. |
| ► | How calculation accounts for changing rates. |
| ► | Examine relevant parts of the calculation result. |
Points of Interest
| ◆ | The file rate of interest changes several times. |
| ◆ | The report notes the changes and explains exactly how the calculation is affected. |
Multimedia Presentation
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Entire Scenario
This example calculates interest on Simple Principal ($9,000) at a File Rate of interest ("Example Rates No 1" file) from 16 July 2004 to 21 Sep. 2007 inclusive.
Calculation Results
The results generated by the program are shown below.
Calculation Result
Example 2
| • | Calculated interest on nine thousand dollars and zero cents ($9,000.00) for the period 16/07/2004 to 21/09/2007 inclusive, a period of 1163 days. |
| • | Total interest is one thousand four hundred and ninety-six dollars and seventy-four cents ($1,496.74). |
| • | As at 21/09/2007 the total amount owing is ten thousand four hundred and ninety-six dollars and seventy-four cents ($10,496.74) comprised of principal of nine thousand dollars and zero cents ($9,000.00) and accumulated interest of one thousand four hundred and ninety-six dollars and seventy-four cents ($1,496.74). |
| • | Interest on $9,000.00 continues to accumulate at one dollar and seventy-three cents ($1.73) per day on and from 22/09/2007. |
PARTICULARS OF INTEREST
(a) On 16/07/2004 the principal was $9,000.00, the interest rate was 4% per annum, and the days per year base used to convert the annual interest rate into the daily interest rate was 366.
(b) Calculated interest on 31/12/2004 because it was the last day before the days per year base changed (from 366 to 365) on 01/01/2005. Interest on $9,000.00 (principal) at 4% per annum × 169 days (16/07/2004 to 31/12/2004 inclusive) ÷ 366 (days per year) is $166.23, resulting in a new unpaid interest balance of $166.23 ($0.00 plus $166.23).
(c) On 01/01/2005 the days per year base used to convert the annual interest rate into the daily interest rate changed to 365. The daily interest rate is now 0.0109589% on debit balances.
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(d) Calculated interest on 04/05/2005 because it was the last day before the interest rate changed on 05/05/2005. Interest on $9,000.00 (principal) at 4% per annum × 124 days (01/01/2005 to 04/05/2005 inclusive) ÷ 365 (days per year) is $122.30, resulting in a new unpaid interest balance of $288.53 ($166.23 plus $122.30).
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(e) On 05/05/2005 the interest rate on debit balances changed to 5% per annum.
(f) Calculated interest on 05/06/2006 because it was the last day before the interest rate changed on 06/06/2006. Interest on $9,000.00 (principal) at 5% per annum × 397 days (05/05/2005 to 05/06/2006 inclusive) ÷ 365 (days per year) is $489.45, resulting in a new unpaid interest balance of $777.98 ($288.53 plus $489.45).
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(g) On 06/06/2006 the interest rate on debit balances changed to 6% per annum.
(h) Calculated interest on 06/07/2007 because it was the last day before the interest rate changed on 07/07/2007. Interest on $9,000.00 (principal) at 6% per annum × 396 days (06/06/2006 to 06/07/2007 inclusive) ÷ 365 (days per year) is $585.86, resulting in a new unpaid interest balance of $1,363.84 ($777.98 plus $585.86).
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(i) On 07/07/2007 the interest rate on debit balances changed to 7% per annum.
(j) Calculated interest on 21/09/2007. Interest on $9,000.00 (principal) at 7% per annum × 77 days (07/07/2007 to 21/09/2007 inclusive) ÷ 365 (days per year) is $132.90, resulting in a new unpaid interest balance of $1,496.74 ($1,363.84 plus $132.90).
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(k) As at 21/09/2007 the total amount owing is ten thousand four hundred and ninety-six dollars and seventy-four cents ($10,496.74) comprised of principal of nine thousand dollars and zero cents ($9,000.00) and accumulated interest of one thousand four hundred and ninety-six dollars and seventy-four cents ($1,496.74).
(l) Total interest for the period 16/07/2004 to 21/09/2007 (1163 days) was one thousand four hundred and ninety-six dollars and seventy-four cents ($1,496.74).
(m) Interest on $9,000.00 continues to accumulate at one dollar and seventy-three cents ($1.73) per day on and from 22/09/2007.
INTEREST CALCULATION TABLE
| DATE | DESCRIPTION | DAYS | AMOUNT | BALANCE | PRINCIPAL | INTEREST |
| 16/07/2004 | Interest rate started at 4% on debit balances (0.01092896% per day). | $9,000.00DR | $9,000.00DR | $0.00DR | ||
| 31/12/2004 | Interest (16/07/2004 to 31/12/2004 inclusive) $9,000.00 × 0.01092896% × 169 days = $166.23. | 169 | $166.23DR | $9,166.23DR | $9,000.00DR | $166.23DR |
| 01/01/2005 | Days per year changed to 365. Daily interest rate now 0.0109589% on debit balances. | $9,166.23DR | $9,000.00DR | $166.23DR | ||
| 04/05/2005 | Interest (01/01/2005 to 04/05/2005 inclusive) $9,000.00 × 0.0109589% × 124 days = $122.30. | 124 | $122.30DR | $9,288.53DR | $9,000.00DR | $288.53DR |
| 05/05/2005 | Interest rate on debit balances changed to 5% per annum (currently 0.01369863% per day). | $9,288.53DR | $9,000.00DR | $288.53DR | ||
| 05/06/2006 | Interest (05/05/2005 to 05/06/2006 inclusive) $9,000.00 × 0.01369863% × 397 days = $489.45. | 397 | $489.45DR | $9,777.98DR | $9,000.00DR | $777.98DR |
| 06/06/2006 | Interest rate on debit balances changed to 6% per annum (currently 0.01643836% per day). | $9,777.98DR | $9,000.00DR | $777.98DR | ||
| 06/07/2007 | Interest (06/06/2006 to 06/07/2007 inclusive) $9,000.00 × 0.01643836% × 396 days = $585.86. | 396 | $585.86DR | $10,363.84DR | $9,000.00DR | $1,363.84DR |
| 07/07/2007 | Interest rate on debit balances changed to 7% per annum (currently 0.01917808% per day). | $10,363.84DR | $9,000.00DR | $1,363.84DR | ||
| 21/09/2007 | Interest (07/07/2007 to 21/09/2007 inclusive) $9,000.00 × 0.01917808% × 77 days = $132.90. | 77 | $132.90DR | $10,496.74DR | $9,000.00DR | $1,496.74DR |
| Final Balance | 1163 | $10,496.74DR | $9,000.00DR | $1,496.74DR |
Calculation Notes
The following information is provided to give you a complete understanding of the calculation, so even the finest details are available if ever needed.
1. The debit interest rates have been taken from the debit rates file (example rates 1).
2. The main calculation options (such as days per year, credit application order and rounding) have been taken from the debit rates file where they are embedded as part of the rates specification. These options can be changed for individual calculations in Settings|Options, or for all new cases in Settings|Setup.
3. The credit interest rates (if required) have been taken from the settings on the main form.
4. Decimal Rounding. When converting from an annual rate of interest to a daily rate of interest, and except if overridden in an interest rates file, the program has rounded-up to 8 decimal places, eg 8.12512324924555 is rounded to 8.12512325%. You can change the setting in Settings|Options.
5. Calendar Year. You are using the "Calendar Year" method for converting the annual interest rate to the daily interest rate. In many cases this is the most accurate setting but you should be aware that it adds complexity to the calculation report because it requires additional interest calculations before and after each leap year. If you require a simpler report and it is appropriate to do so then choose a different setting. The setting is either embedded in the Options section of the selected interest rate file or else it is set in Settings|Options on the main form. In either case you can change or override the setting for a particular calculation in Settings|Options. Please note that such settings only apply to the current calculation. You can change the default value that affects all new calculations in Settings|Setup. The default value cannot however automatically override any setting in the Options part of an interest rate file - you still have to override on an individual basis as explained above.
