Calculating IRR
Recently, I was helping a bank define Basel 2 requirements. For every dollar a bank lends, at least 8 cents should come from its own pocket, and the rest from its depositors. But a risky $1 loan may be...
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Absolutely convergent series
I’ve seen many proofs that 1=2. Here’s a classic. The (not-so-subtle) error in the above proof is that we’re cancelling (a-b) on both sides, when (a-b) equals zero. That is, we’re dividing by zero on...
View ArticleDifference between interest rate and APR
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...
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How to calculate principal repayment
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...
View ArticleHow to convert APR to interest rate
If you don’t know your interest rate (IRR), but only have your APR, there is a way of figuring out the actual interest rate on Excel. For this, you need to know your EMI (monthly payment), duration of...
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