HELP - Interest calculation - double check

OnlyMe_08

Hi

Not sure if this is the right forum to post to, but hopefully it is, and hopefully you could help.

Basically, I'd like to know / double-check what the interest will be on £100,000 from 1 June 2007 to 31 January 2011 is if the interest was 2% above base rate and moved in line with whenever the base rates were effective.

Thanks

rb10

I make it £33,290.41.

This is with no compounding or tax.

Is this loosely what you made it to be?

OnlyMe_08

Thanks rb10

But my figure differs to yours by quite a bit?

Taking an assumption that someone's (A) lent the £100000 to someone (B) and wants to charge interest at 2% over base during this period, is that what your figure will still be?

Lokolo

I got £16,437....

https://spreadsheets.google.com/ccc?key=0ApdsTwViTizPdHIxS2dBS21NN04zb3l1VmoyVmw5RFE&hl=en_GB&authkey=CO_riYQJ

Approximate, doing it monthly and changing rate not on actual dates but by month.

SnowMan

The accurate figure is £17,445 gross interest.

Lokolo's figures don't allow for compounding which is the main reason for this figure being higher than his.

rb10

Oops ... yes, mine is definitely wrong ... sorry about that.

OnlyMe_08

Thanks to Loloko & SnowMan too.

The figure I had was closer to Loloko's.

Would one normally allow for compounding in the assumption I've given? Sorry, not very good at this!

SnowMan

OnlyMe_08 wrote: »

Thanks to Loloko & SnowMan too.

The figure I had was closer to Loloko's.

Would one normally allow for compounding in the assumption I've given? Sorry, not very good at this!

In the absence of any agreement in advance how a return would be calculated I think it would probably be right to allow for compounding as that just recognises that interest is earned on interest, as well as on the original capital.

So £100,000 at a constant 5% pa (say) over 2 years grows to 100,000 x 1.05 x 1.05 using the compounding method rather than to 100,000 + (2 x 0.05 x 100,000) under the simple interest method.