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Parameters
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1. Loan Amount
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The total amout that a
borrower borrows.
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2. Interest Rate/Annual Percentage Rate(APR)
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The annual interest rate
applicable to the loan quoted by the lender of the fund.
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Interest rates may be
quoted on annual, semiannual, quarterly and monthly basis.
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3. Maturity
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The tenure for which the
loan is taken. Maturity is often quoted in years and months.
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Case
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A man wants to purchase a new car costing $15000. He
wants to fund his purchase from a
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local bank who quotes an interest rate of 9%.
Furthermore, the interest has to be paid
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twice every year (semiannual compounding) for a
period of 10 years and 6 months.
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The EMI payments for this loan is calculated as
follows
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a.
Input loan amount (i.e $15000) in the loan amount input cell of the
calculator. Change
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currency from the drop down list.
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b.
Input 9 in the interest rate input cell corresponding to the interest rate
charged by the
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bank. Change the compounding method from the drop
down list
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c.
Input 10 in the years input cell and 6 in the months input cell.
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d.
Notice that the equivalent periodic interest rate and number of payment
periods are
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automatically calculated.
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e. The
EMI for the loan application is also calculated automatically on the basis of
the
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information generated in (d).
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