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TimeValue Software Blog

Simple vs Compound Interest for a Loan

By Martel Pellerin

Interest is defined as the cost of borrowing money. It can be either simple interest or compound interest. Simple interest is calculated on the principal amount of a loan only. Compound interest is calculated on the principal amount and also on any accumulated interest of previous periods that was not paid, and can thus be regarded as “interest on interest.”

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Simple vs Compound Interest for an Investment

By Martel Pellerin

The magic of compounding can work to your advantage when it comes to your investments and can be a potent factor in wealth creation. While simple and compound interest are basic financial concepts, becoming thoroughly familiar with them will help you make better decisions when taking out a loan or making investments, which may save you thousands of dollars over the long term.

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Interest Calculations with Stub Periods

By Martel Pellerin

If you are interested in manually calculating an interest amount, you need to understand the impact of a stub period or an irregular payment. When you have monthly compounding or a monthly rate period, i.e. a mortgage or auto loan, the interest calculation is based on the principal times the interest rate divided by 1/12th assuming the payments are all made timely month to month.

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Constant Yield Method for Bond Amortization

By Martel Pellerin

TValue software is an excellent tool to calculate the discount or premium amortization of a bond. The Internal Revenue Service requires you to use the “constant yield method” to amortize bond premiums or discounts, which is the excess or discount of the bond price over face value. You pay the bond price and, if you hold the bond until maturity, you receive the face value. This creates a loss or gain, but you can’t deduct the loss or gain all at once. Instead, you amortize the bond over its remaining lifetime to expense part of the loss or book income each year. The amortized amount reduces or increases the interest income you receive for investing in the bond.

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Estimated Tax Penalty (Interest Calculation)

By Martel Pellerin

Did you know the Estimated Tax Penalty is actually an interest calculation? You calculate interest from each deposit due date with the net amount due and then you calculate the interest till the tax due date. The IRS uses the Federal interest rates for the calculations but they use a simple interest methodology versus daily compounding of interest.

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