Tabular Example

To find the effective monthly interest rate on a loan that will be paid off in 5 months. The loan was for $100 with an interest rate of 2% per month compounded daily.

(1)\begin{align} EIR=\left[1+\left(\frac{0.02}{30}\right)\right]^{30}-1 = 0.02019454 \end{align}

Now use the EIR to calculate the monthly payment.

(2)\begin{eqnarray} \text{Payment Amount} & = & 100 \cdot \left(\frac{0.02019454 \cdot (1+0.02019454)^5}{(1+0.02019454)^5-1}\right)\\ & = & \$21.2278 \end{eqnarray}

This table contains the computed values:Payment Number | Payment Amount | Interest | Principal Payment | Balance Remaining |

1 | $21.2278 | $2.01945 | $19.20837 | $80.792 |

2 | $21.2278 | $1.63155 | $19.59627 | $61.195 |

3 | $21.2278 | $1.23581 | $19.99200 | $41.203 |

4 | $21.2278 | $0.83208 | $20.39570 | $20.876 |

5 | $21.2278 | $0.42020 | $20.80762 | $0.0000 |

page revision: 6, last edited: 16 Feb 2016 16:19