__ACCOUNTING AND FINANCE FOR BANKERS__

( AFB)

( AFB)

__Unit I : Calculation of Interest and Annuities__

( AFB)

Formula for calculating simple interest :

Interest = Principal x Rate x Time (PRT),

where:

'Interest' is the total amount of interest paid

'Principal' is the amount lent or borrowed

'Rate' is the percentage of the principal charged as interest each year.

'Time' is the time in years of the loan.

Find the amount of interest paid.

Interest = PRT

= 50,000 x 0.10 x 3

= Rs. 15,000/-

P = A(1 +r/n)^n x t,

where P = the principal

A = the amount deposited

r = the rate (expressed as fraction, e.g. 6 per cent = 0.06)

n = number of times per year that interest is compounded

t = number of years invested Frequently compounding of Interest.

If the interest is compounded :

Annually = P (1 + r)

Quarterly = P (1 + r/4)^4

Monthly = P (1 + r/12)^12

Amount = Rs. (30000 + 4347) = Rs. 34347.

Let the time be

30000(1+7/100)^n = 34347

(107/100)^n = 34347/30000

(107/100)^n = 11449/10000

(107/100)^n = (107/100)^2

The Rule of 72:

Allows you to determine the number of years before your money doubles whether in debt or investment. Divide the number 72 by the percentage rate.

Equated Monthly Installment (EMI) refers to the monthly payment a borrower makes on his loan. Though it is a combination of interest payment and principal repayment, the total monthly amount is calculated in such a way that it remains constant all through the repayment tenure. In Equated Monthly Installments (EMIs), the principal and the interest thereon is repaid through equal monthly installment over the fixed tenure of the loan. The benefit of an EMI for borrowers is that they know precisely how much money they will need to pay toward their loan each month, making the personal budgeting process easier.

E = P×r×(1 + r)n/((1 + r)n - 1)

E is EMI

where P is Principle Loan Amount

r is rate of interest calculated in monthly basis it should be = Rate of Annual interest/12/100

if its 10% annual ,then its 10/12/100=0.00833

n is tenure in number of months

100000*0.00833*(1 + 0.00833)12/((1 + 0.00833)12 - 1) = 8792

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