Question:

How long would it take to pay off a loan of $ 11000 if the annual interest rate was 9. 6 % compounded monthly?

Answer:

The APR (a = A/1200) is then calculated iteratively by solving the following equation using the Newton-Raphson method: (MORE?)

More Info:

An interest rate is the rate at which interest is paid by a borrower (debtor) for the use of money that they borrow from a lender (creditor). Specifically, the interest rate (I/m) is a percent of principal (P) paid a certain amount of times (m) per period (usually quoted per annum). For example, a small company borrows capital from a bank to buy new assets for its business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. Interest rates are normally expressed as a percentage of the principal for a period of one year.

Interest-rate targets are a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment. The central banks of countries generally tend to reduce interest rates when they wish to increase investment and consumption in the country's economy. However, a low interest rate as a macro-economic policy can be risky and may lead to the creation of an economic bubble, in which large amounts of investments are poured into the real-estate market and stock market. This happened in Japan in the late 1980s and early 1990s, resulting in the large unpaid debts to the Japanese banks and the bankruptcy of these banks and causing stagflation in the Japanese economy (Japan being the world's second largest economy at the time), with exports becoming the last pillar for the growth of the Japanese economy throughout the rest of 1990s and early 2000s. The same scenario resulted from the United States' lowering of interest rate since late 1990s to the present (see 2007–2012 global financial crisis) substantially by the decision of the Federal Reserve System. Under Margaret Thatcher, the United Kingdom's economy maintained stable growth by not allowing the Bank of England to reduce interest rates. In developed economies, interest-rate adjustments are thus made to keep inflation within a target range for the health of economic activities or cap the interest rate concurrently with economic growth to safeguard economic momentum.

Mathematical finance is a field of applied mathematics, concerned with financial markets. Generally, mathematical finance will derive and extend the mathematical or numerical models without necessarily establishing a link to financial theory, taking observed market prices as input. Mathematical consistency is required, not compatibility with economic theory. Thus, for example, while a financial economist might study the structural reasons why a company may have a certain share price, a financial mathematician may take the share price as a given, and attempt to use stochastic calculus to obtain the corresponding value of derivatives of the stock (see: Valuation of options; Financial modeling). The fundamental theorem of arbitrage-free pricing is one of the key theorems in mathematical finance, while the Black–Scholes equation and formula are amongst the key results.

Mathematical finance also overlaps heavily with the field of computational finance (as well as financial engineering). The latter focuses on application, while the former focuses on modeling and derivation (see: Quantitative analyst), often by help of stochastic asset models. In general, there exist two separate branches of finance that require advanced quantitative techniques: derivatives pricing on the one hand, and risk- and portfolio management on the other.

An interest rate is the rate at which interest is paid by a borrower (debtor) for the use of money that they borrow from a lender (creditor). Specifically, the interest rate (I/m) is a percent of principal (P) paid a certain amount of times (m) per period (usually quoted per annum). For example, a small company borrows capital from a bank to buy new assets for its business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. Interest rates are normally expressed as a percentage of the principal for a period of one year.

Interest-rate targets are a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment. The central banks of countries generally tend to reduce interest rates when they wish to increase investment and consumption in the country's economy. However, a low interest rate as a macro-economic policy can be risky and may lead to the creation of an economic bubble, in which large amounts of investments are poured into the real-estate market and stock market. This happened in Japan in the late 1980s and early 1990s, resulting in the large unpaid debts to the Japanese banks and the bankruptcy of these banks and causing stagflation in the Japanese economy (Japan being the world's second largest economy at the time), with exports becoming the last pillar for the growth of the Japanese economy throughout the rest of 1990s and early 2000s. The same scenario resulted from the United States' lowering of interest rate since late 1990s to the present (see 2007–2012 global financial crisis) substantially by the decision of the Federal Reserve System. Under Margaret Thatcher, the United Kingdom's economy maintained stable growth by not allowing the Bank of England to reduce interest rates. In developed economies, interest-rate adjustments are thus made to keep inflation within a target range for the health of economic activities or cap the interest rate concurrently with economic growth to safeguard economic momentum.

Debt Mortgage Economics Interest Renting

Joseph Raphson was an English mathematician known best for the Newton–Raphson method. Little is known about his life, and even his exact years of birth and death are unknown, although the mathematical historian Florian Cajori provided the approximate dates 1648–1715. Raphson attended Jesus College at Cambridge, graduating with an M.A. in 1692. He was made a Fellow of the Royal Society on 30 November 1689, after being proposed for membership by Edmund Halley.

Raphson's most notable work is Analysis Aequationum Universalis, which was published in 1690. It contains a method, now known as the Newton–Raphson method, for approximating the roots of an equation. Isaac Newton had developed a very similar formula in his Method of Fluxions, written in 1671, but this work would not be published until 1736, nearly 50 years after Raphson's Analysis. However, Raphson's version of the method is simpler than Newton's, and is therefore generally considered superior. For this reason, it is Raphson's version of the method, rather than Newton's, that is to be found in textbooks today.

Applied mathematics is a branch of mathematics that concerns itself with mathematical methods that are typically used in science, engineering, business, and industry. Thus, "applied mathematics" is a mathematical science with specialized knowledge. The term "applied mathematics" also describes the professional specialty in which mathematicians work on practical problems; as a profession focused on practical problems, applied mathematics focuses on the formulation and study of mathematical models. In the past, practical applications have motivated the development of mathematical theories, which then became the subject of study in pure mathematics, where mathematics is developed primarily for its own sake. Thus, the activity of applied mathematics is vitally connected with research in pure mathematics.

In numerical analysis, Newton's method (also known as the Newton–Raphson method), named after Isaac Newton and Joseph Raphson, is a method for finding successively better approximations to the roots (or zeroes) of a real-valued function.

The Newton–Raphson method in one variable is implemented as follows:

Finance

Analogous to continuous compounding, a continuous annuity is an ordinary annuity in which the payment interval is narrowed indefinitely. A (theoretical) continuous repayment mortgage is a mortgage loan paid by means of a continuous annuity.

Mortgages (i.e., mortgage loans) are generally settled over a period of years by a series of fixed regular payments commonly referred to as an annuity. Each payment accumulates compound interest from time of deposit to the end of the mortgage timespan at which point the sum of the payments with their accumulated interest equals the value of the loan with interest compounded over the entire timespan. Given loan P0, per period interest rate i, number of periods n and fixed per period payment x, the end of term balancing equation is:

Finance is the allocation of assets and liabilities over time under conditions of certainty and uncertainty. A key point in finance is the time value of money, which states that a unit of currency today is worth more than the same unit of currency tomorrow. Finance aims to price assets based on their risk level, and expected rate of return. Finance can be broken into three different sub categories: public finance, corporate finance and personal finance.

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