## SOME MATHEMATICS

You can skip this section if you aren’t interested in all the details of the calculations. I recommend that you at least glance through this section to try and get an idea of what’s going on in various calculations.

At the outset of the loan, the interest is just the principal times the interest rate per compounding interval, therefore we may write

R

Interest = P—,

n

where P is the principal, R is the interest rate per year, and n is the number of compounding intervals per year.

To get the new balance, you add this interest to the principal:

R

Balance = P + P—.

У

You can see that the principal P appears twice in this equation. The rules of algebra let us write this same formula as

Balance = P | 1 + R

К У

Now, suppose you want to get the balance after the second compounding pe...

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