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Post by Admin/YBB on Mar 3, 2024 17:32:17 GMT -6
1. Doubling
A CD/fixed-deposit will double approximately in 72/i, where i is the % interest rate. This is the most common application.
Exact compound interest formula: (1 + 0.01*i)^n = 2, or n = Ln2/Ln(1 + 0.01*i) = Ln2/i*, where logarithmic rate i* = Ln(1 + 0.01*i)
2. Loan/Mortgage - Equal-Point
Equal-point when loan principal & interest payments are equal happens when years remaining for loan = 72/i.
Example 1: 30-yr mortgage at 6%, years remaining = 12, equal-point is in the 18th yr.
Example 2: 15-yr mortgage at 6%, equal-point is in the 3rd yr.
Example 3: NEVER for car loan because years remaining > loan maturity is an invalid answer. Another way to think is that car loan maturity is short (3-6 years), and principal is much higher than interest from the start.
3. Accumulation - Equal-Point
In a uniform systematic investment plan (SIP) of $A/yr, as the balance rises, eventually the interest credits become equal to the annual uniform payment.
Equality-point in years = 72/i
Example: 20-yr SIP at 6%, equal-point is in the 12th year.
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