A customer recently asked how to use TValue to determine the balance and annual interest contributions if they invested $100,000 in an annuity that was compounded annually for 15 years.
The minimum lease payments are the lowest amount that a lessee can expect to make over the lifetime of the lease. The minimum lease payments, including a guarantee of a residual if applicable, are used to value the lease by doing a net present value (NPV) calculation. The method of calculating minimum lease payments is laid out in the Statement of Financial Accounting Standards No. 13 (FAS 13), Accounting for Leases.
When I first joined TimeValue Software, it took me a while to understand the difference between Daily (compounding) and Exact Days. Both methods calculate interest each day but that is where the similarity ends.
We often get customers asking us “should I do my loan with compound interest or simple interest?”. The answer is borrowers benefit from simple interest and lenders could benefit from compound interest. Often, the financial institutions do not give you a choice.
If you are interested in manually calculating an interest amount with irregular payments, you need to understand the impact of a stub period in the calculation. Sometimes the calculations are easy to verify and sometimes you may get a hybrid calculation because you have to do two calculations to verify the interest amount.