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Financial calculation question: variable interest rate
07-05-2015, 10:16 AM (This post was last modified: 07-05-2015 12:10 PM by fhub.)
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RE: Financial calculation question: variable interest rate
(07-04-2015 09:55 PM)Dave Britten Wrote:  Suppose I open a home equity line of credit that has a 1.99% introductory rate for 6 months. Then I immediately finance something for, say $4000. After 6 months, the interest rate increases to 2.99%. How would I go about calculating 12 equal payments to have the financed amount fully paid off at the end of 12 months?

Note I'm assuming such a credit line has beginning-period payments like a credit card, and the interest will compound at 1.99% APR six times before changing to 2.99%.

Well, the TVM equation for this problem is:
(it's easy to calculate PMT=... from it)

PV*(1+i1)^6*(1+i2)^6 + PMT*((1+i1)^6-1)/i1*(1+i1)*(1+i2)^6 + PMT*((1+i2)^6-1)/i2*(1+i2)=0

PV=4000, i1 and i2 are the monthly interest rates of 1.99% and 2.99% (depending on whether APR means nominal or effective annual rate), i.e. either i1=1.99%/12 (for nom. APR) or i1=(1+1.99%)^(1/12)-1 (for eff. APR).

PS: the result is PMT=-$336.728 (for nom. APR) and PMT=-$336.689 (for eff. APR).

Franz
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RE: Financial calculation question: variable interest rate - fhub - 07-05-2015 10:16 AM



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