Debbie's question from Facebook on interest rates

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In summary, the conversation is about an accounting issue involving the application of interest annually. The interest rate is 10% and it is not specified whether it is simple or compound. The question is how much interest is charged and when is it applied, as well as the ending balance for the year. The answer provided is that it does not matter whether the interest is simple or compound as long as it is calculated annually. The ending balance can be found by adding the initial balance, monthly payments, and the interest gained. If the interest is charged monthly, the type of interest should be specified.
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Jameson
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I'm needing help w/ an accounting issue that deals with applying interest annually. The interest rate is 10%. It doesn't say if it's compounded or simple so which is to be used?

If you start with a balance of \$20323.64 in Jan, and make twelve monthly payments of \$200 each (total \$2400) how much $ in interest is charged, when is it applied (Jan, monthly, or Dec etc?) and what's the ending balance for the year?

Please help me out, and explain your answer so that I'll know how to do it next time ok? Thanks!
 
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Jameson said:
I'm needing help w/ an accounting issue that deals with applying interest annually. The interest rate is 10%. It doesn't say if it's compounded or simple so which is to be used?

If you start with a balance of \$20323.64 in Jan, and make twelve monthly payments of \$200 each (total \$2400) how much $ in interest is charged, when is it applied (Jan, monthly, or Dec etc?) and what's the ending balance for the year?

Please help me out, and explain your answer so that I'll know how to do it next time ok? Thanks!

Hi Debbie, :)

Looking forward to seeing you on Math Help Boards. :)

I don't think it matters whether the interest is simple or compound if it is applied in January or December on an annual basis provided that you want to find the balance at the end of the first year. Suppose the interest is calculated each January. At the moment of calculation you have a balance of \(\$ 20323.64\) in the account and the interest gained in the first year is therefore, \(\$ 20323.64\times \frac{10}{100}\). So at the end of the first year you will have a balance of,

\[\$ 20323.64+\$2400+\left(\$ 20323.64\times \frac{10}{100}\right)\]

Similarly if the interest is calculated in December, you'll have to find the total amount of money in the account in December and perform the calculation as above. If the interest is charged monthly, then it should be given whether to use simple or compound interest.

Kind Regards,
Sudharaka.
 

FAQ: Debbie's question from Facebook on interest rates

What are interest rates and how do they affect me?

Interest rates are the percentage of the principal amount that a lender charges as interest on a loan. They can affect you in many ways, such as the cost of borrowing money, the return on your savings, and the overall health of the economy.

How are interest rates determined?

Interest rates are determined by a variety of factors, including the current state of the economy, inflation, and the policies of the central bank. They can also vary depending on the type of loan, the borrower's credit score, and the length of the loan term.

How do changes in interest rates impact the stock market?

Changes in interest rates can have a significant impact on the stock market. When interest rates are low, investors may feel more confident in borrowing money and investing it in the stock market, driving up stock prices. On the other hand, when interest rates are high, investors may be less likely to take on debt and may pull money out of the stock market, causing stock prices to decrease.

Can interest rates be predicted?

While there are many factors that can influence interest rates, they can be difficult to predict with certainty. Economists and analysts use various indicators and data to make predictions, but there are always unexpected events and variables that can impact interest rates.

How can I take advantage of low interest rates?

If you are looking to borrow money, low interest rates can be a good opportunity to secure a loan with a lower interest rate. It can also be a good time to refinance existing loans to take advantage of lower rates. However, it's important to carefully consider your financial situation and make informed decisions before taking on any new debt.

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