The Useful Algebraic Formulae for Interest Computation in Financial Decisions Keishiro Matsumoto

A new theory of term loans is proposed and proved in this paper. The algebraic formulae to compute the loan balances of popular term loans and their interest expenses are derived from the theory. Excel users can utilize the formulae in calculating tax savings on accrued interest in refinancing analysis without undue hardship. Furthermore, it is typically necessary to conduct a sensitivity or simulation analysis since key variables involved in financial decisions are often subject to uncertainty. The new formulae will make the use of an amortization schedule obsolete in computing interest expenses. The new method should be of great value in pedagogic settings, since computational tedium is replaced by a more intellectually stimulating effort to understand the logic behind the formulae. It is also indispensable for software engineers developing computer programs to solve application problems in these areas because the formula approach absolutely supersedes in numerical efficiency the traditional method based on an amortization schedule. I