I need help in math, I think it is basic math that I require

[sommers936]

My bank is charging me 21% interest per annum, yet they then charge me per day. i am unsure as to how this really works.
I have an overdraft, lets say $200.00 and they are charging me 21% interest, yet they somehow calculate it for everyday, could someone please help me figure this out?

Thank-you.

 

[stapel]

Are you given that the bank is compounding daily, and the interest rate is annual? If so (and I think this is customary in "real life", not just math word problems), then I believe you're supposed to use the compound-interest formula, "A = P(1 + r/n)^nt", to do the calculations.

And, yes, the "effective" interest is different from the "annual" interest rate.

Eliz.

 

[sommers936]

Thanks everyone.

Thank you for helping. Although i really had no idea what you were saying. I never did well in Math in school, and i do not understand the equations that you are presenting. I'm sorry if i sound slow, but I guess i would rather ask for help on something I do not know, than allow any financial institution to take all my money.
If it is possible to reword your equation so that I may understand it, I would be greatly appreciative.

Also someone tried to IM me. I am sorry but I did not get your IM till 12:15am today. I was busy with the kids and was unable to be at my computer. It is once again time to make halloween costumes. Not an easy task, when no one can make up their minds.

But anyways, I will be online tomorrow, if anyone would like to try and contact me again.

Thanks for taking the time to try and help me.

Robert.

 

[Gene]

P is how much you owe
r is the anual rate 21%=.21
n is the number of times it is compounded per year.
t is the number of years till you pay it off.
A is the amount to pay it off.
If you make monthly payments there is a different formula.

If you pay it after 1 month you pay
A=P(1 + r/n)nt =
200(1+.21/365)^(365/12)=203.53

If you pay it after 6 months you pay
200(1+.21/365)^(365/2)=221.81

If you pay it after 12 months you pay
200(1+.21/365)^(365/1)=246.72

 

[Denis]

Re: I need help in math, I think it is basic math that I req

My bank is charging me 21% interest per annum, yet they then charge me per day. i am unsure as to how this really works.
I have an overdraft, lets say $200.00 and they are charging me 21% interest, yet they somehow calculate it for everyday, could someone please help me figure this out? Thank-you.

I'm fairly sure your statement "yet they then charge me per day" is not
quite so; should be: the interest is calculated on the daily balance and
added to your account once per month...

Is there not a "one day example" somewhere on the statement you receive?

200 for one day = 200 * .21 / 365 = .11 or .12 cents (depends on rounding).

I'm looking now ay my MasterCard: 18.4% shown as .0541% daily;
your 21% should show .0575 % daily.

However, these darn cards are never "very clear"; why don't you phone
your card issuer, and ask something like: if I owe you $200 for 25 days,
how much interest will you charge me?

We can then compare apples with apples.

Have a look at your Bell Canada invoice: you'll see 12% shown as:
1% monthly, then 12.6825% per annum.
Showing the "true rate" is a MUST in Canada.

 

[sommers936]

I will ask my bank this question today and post their response. Thank you.

And thank-you to the person who clarified, the equation that was very appreciated.

 

[Denis]

Calculating the true annual interest is quite simple; formula is:
(1 + r/n)^n - 1, where r = interest rate, n = number of times rate compounds

monthly: (1 + r/12)^12 - 1
weekly: (1 + r/52)^52 - 1
daily: (1 + r/365)^365 - 1

Using 12%:
(1 + .12/12)^12 = 1.01^12 = 1.126825 - 1 = .126825 or 12.6825%

(1 + .12/52)^52 = 1.00231~^52 = 1.127341~ - 1 = .127341~ or 12.7341~%

(1 + .12/365)^365 = 1.000328~^365 = 1.127474~ - 1 = .127474~ or 12.7474~%

 

[stapel]

I will ask my bank this question today and post their response.

So this is an actual banking question, not a math question...? Sorry; I'd misunderstood. (Textbook authors are writing their exercises any more to sound just like what you'd posted; I assumed you'd copied straight out of a book.)

You might want to just talk to your bank, because they might have their own methods (banking being a very old profession) for doing their computations. Fair warning: Banking and insurance don't always have to play with the rules that the rest of us have to use. :shock:

Good luck. :wink:

Eliz.