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TimeValue Software Blog

Simple Interest versus Compound Interest on a Loan

By Martel Pellerin

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.

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Interest Calculations and the Impact of Stub Periods

By Martel Pellerin

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.

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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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