Sharp EL733A EL-733A Operation Manual - Page 48

Then, once you have calculated the payment, consider how the finance charges reduce the net amount of money loaned. This cash-flow schedule shows exactly what happens in this contract: 1.5% x 145'000 (finance charge) EV = 0 12 3 PMT= 1842.0 # r J2101211121212131214121512161 n =18 X 12 =? PV = -145'000 The up front finance charge reduces the net amount of money loaned without affecting the payment, and thus increases the actual interest rate: r2ndF) IReL) 1.5 Wi PV Oh QJ (pause) EJ 12 E Result: 14.27 That is the actual annual percentage rate on this loan. However, this rate is still a straight APR computed by multiplying the periodic rate by the number of periods in a year. This rate is not an effective rate in that it does not incorporate compounding. To compute this actual, effective rate, you need to use the FEFFI key. First store that 14.27 in memory. Press: (x-Al Then compute the effective annual rate that results by compounding 14.27% twelve times: 12 iFeiF DI A Result: 15.24 So the actual, effective APR quoted by your lending institution is 15.24%. That rate includes prepaid finance charges and compounding. Amortization Schedules ( VARI, , and KG]) An amortization schedule on a loan or mortgage separates, on a payment by payment basis, the amount of interest paid from the amount of principal paid. The EL-733A has three functions that allow you to create amortization schedules. These functions are: AMR to break a single payment into principal and interest, PIP, to enter a payment period for use by IACCI, and [ACc to show the accumulated interest and principal. Using these three functions, you can create amortization schedules that quote principal and interest either payment by payment or over a series of payments. The EL-733A uses information stored in the five 'NM registers n, i, PV, FV, and PMT, when building an amortization schedule. Usually, you will compute the loan payment right before you create the amortization schedule, 92 93