andieje
asked on
Calculating APR
Hello
I'm doing some work on calculating APR and i am reading this document
http://www.creditunion.ie/files/file_20050316024652OFT%20-%20Credit%20Charges%20and%20APR.pdf
Could i ask what this means on the bottom on page 45
"As this equation shows, at the correct annual rate, the present value of the
repayment is equal to the amount advanced. This is generally referred to as
the ‘present value rule’"
To me this is saying that PV = A at the 'correct annual rate'
What does it mean 'correct annual rate'?
To me PV = A when (1+i)^t is equal to 1
Is this what it is saying? I do not understand what it means by correct annual rate
I'm doing some work on calculating APR and i am reading this document
http://www.creditunion.ie/files/file_20050316024652OFT%20-%20Credit%20Charges%20and%20APR.pdf
Could i ask what this means on the bottom on page 45
"As this equation shows, at the correct annual rate, the present value of the
repayment is equal to the amount advanced. This is generally referred to as
the ‘present value rule’"
To me this is saying that PV = A at the 'correct annual rate'
What does it mean 'correct annual rate'?
To me PV = A when (1+i)^t is equal to 1
Is this what it is saying? I do not understand what it means by correct annual rate
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SOLUTION
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ASKER
Hi Kevin
I've looked at their answers and it makes sense. The problem I am having is that I dont really understand this field and I really dont know how far i need to understand it either to just implement something. I get different answers on every online calculator/excel spreadsheet i try for even for simple loan repayment calcualtions (i've got another question on this) yet alone apr calculations. But then the loan repayment calculations feed into the apr calculation. Furthermore I get different answers depending on whether i use binary chop or newton rhapson for apr. It seems a minefield!
I've looked at their answers and it makes sense. The problem I am having is that I dont really understand this field and I really dont know how far i need to understand it either to just implement something. I get different answers on every online calculator/excel spreadsheet i try for even for simple loan repayment calcualtions (i've got another question on this) yet alone apr calculations. But then the loan repayment calculations feed into the apr calculation. Furthermore I get different answers depending on whether i use binary chop or newton rhapson for apr. It seems a minefield!
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ASKER
I am going through the booklet in the other question as I don't understand the answers and that led to this question. I'm really sorry for being stupid but I don't really get it. I don't know anything about loans and finance so I don't even know the terminology. So to be honest, I'm just as confused by your answer - if not more :( sadly - as you have used slightly different terminology from the booklet. Perhaps I now need to open a different question to clarify the terminology but I know the quality of the forum is important and I dont want to create a jumbled heap of questions.
I've obviously misunderstood but i thought it meant PV was the value you borrowed and A is essentially the amount you are going to pay back in total, but the booklet then refers to PV as the 'present value of the repayment.' In your answer you also refer to 'present value of advance' which further confounds me as this isnt a term in the explanation of the previous pages either.
Thanks for answering