That helped a lot! Thank you!
Also, just another question. How would you go about solving the following:
1) Robert wants to borrow $50 000. He is offered two options by two different financial institutions
- Option 1 = 7.32% p.a. simple interest
- Option 2 = 7.32% p.a. compounded fortnightly
Both options have a 10 years loan term
Calculate the monthly repayment under both options.
So for Option 2, we can use Finance Solver:
N = 120 (12 monthly payments over the course of 10 years?)
I = 7.32
PV = 50,000 (Positive because Robert is borrowing)
Pmt = (-589.13) Answer
FV = 0
Ppy =12 (Because you want monthly repayments only)
Cpy = 26 (Fortnightly compounding periods)
(Note: Btw, I've never seen an exam question where the Ppy and Cpy is different. My answer above might be wrong so if someone wants to double-check please do!)
For Option 1 I would just do your simple interest formula, find how much over the course of the total 10 years and then separate them into monthly payments.
(I've never seen FS actually work for simple interest even with different repayment periods. You usually can only use FS when it's compounding (you can choose to use the compounding formulas or FS but not simple interest/FS)).