In 1984, the Tax Reform Act set provisions for applicable federal rates (AFRs). This is a minimum tax rate that must be charged on all loans, including personal/family loans. The IRS provides various prescribed rates for federal income tax purposes each month and TimeValue Software offers them on our website at Applicable Federal Rates | TimeValue Software.

At the end of the year, we have customers call for assistance with compound interest loans (Normal Amortization) who ask “How do I calculate my year-end interest accruals or interest paid?” With compound interest loans and irregular payments, this can be challenging, but there is an alternative way to calculate them. Let’s show you how TValue can assist in calculating year-end interest accruals and interest paid.

Multiple states have passed regulations for commercial financing disclosure laws that will require an Annual Percentage Rate (APR) similar to the Regulation Z (Reg Z), Truth in Lending Act for consumer loans that is computed in TValue amortization software. The APR is a standardized way to express the total cost of credit, including both interest and fees, as a single percentage rate. By requiring commercial lenders to disclose APRs, these state regulations will help businesses understand the true cost of borrowing and make more informed decisions about their financing options.

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 an investment, which may save you thousands of dollars over the long term.  When investing, compounding is critical. You'll start earning interest on your initial deposit and you'll earn interest on the interest you just earned.

In reviewing the 2017 Berkshire Performance summary, you would be amazed at the impact that compounding has over a number of years. In their report, they show three return calculations: the Berkshire per share “book value” which was a 19.1% compounded annual return, the Berkshire per share “market value” which was a 20.9% compounded annual return, and the S&P 500 compounded annual return of 9.9%. These were from August 31, 1964 to December 31, 2017.