How to Find the Total Amount Paid in an Interest Rate Equation
Understand the terms you will be working with in your interest rate equation., Know the equation used to calculate the total amount you will pay., Read through the equation you are given and determine which numbers coincide with each variable of the...
Step-by-Step Guide
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Step 1: Understand the terms you will be working with in your interest rate equation.
When you are solving an interest rate equation, such as that for an interest rate you have for a loan you took out, you will work with several different variables.
These include:
P = principal amount borrowed. i = the interest rate.
N = the term of the loan, in years.
F = the total amount paid at the end of the designated number of years. -
Step 2: Know the equation used to calculate the total amount you will pay.
To find the total amount paid at the end of the number of years you pay back your loan for, you will have to multiply the principal amount borrowed with 1 plus the interest rate.
Then, raise that sum to the power of the number of years.
The equation looks like this:
F = P(1 + i)^N , Normally, interest rate problems will be given in sentence format and you will have to figure out what each number represents.
For example, you are given: “You borrow $4,000 from a bank and promise to repay the loan principal plus the accumulated interest in four years at a rate of 10% per year.
How much would you repay at the end of 4 years?”.
P would be $4,000. i would be 10%.
N would be 4 years.
F would be what you are trying to find. , Once you have figured out what numbers you are working with, you can plug the numbers in so that you can work with the equation to find the fixed rate.
Our equation would be:
F = 4000(1 + 10%)^4.
Note that to make things easier, you can convert the interest percentage to decimals so the equation would be F = 4000(1 +
0.1)^4 -
Step 3: Read through the equation you are given and determine which numbers coincide with each variable of the equation.
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Step 4: Plug the known numbers into the equation for fixed rate.
Detailed Guide
When you are solving an interest rate equation, such as that for an interest rate you have for a loan you took out, you will work with several different variables.
These include:
P = principal amount borrowed. i = the interest rate.
N = the term of the loan, in years.
F = the total amount paid at the end of the designated number of years.
To find the total amount paid at the end of the number of years you pay back your loan for, you will have to multiply the principal amount borrowed with 1 plus the interest rate.
Then, raise that sum to the power of the number of years.
The equation looks like this:
F = P(1 + i)^N , Normally, interest rate problems will be given in sentence format and you will have to figure out what each number represents.
For example, you are given: “You borrow $4,000 from a bank and promise to repay the loan principal plus the accumulated interest in four years at a rate of 10% per year.
How much would you repay at the end of 4 years?”.
P would be $4,000. i would be 10%.
N would be 4 years.
F would be what you are trying to find. , Once you have figured out what numbers you are working with, you can plug the numbers in so that you can work with the equation to find the fixed rate.
Our equation would be:
F = 4000(1 + 10%)^4.
Note that to make things easier, you can convert the interest percentage to decimals so the equation would be F = 4000(1 +
0.1)^4
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