How can i work out my apr

2sides2everystory

Well January20, if you've already used simple formulas in some of the cells in Excel to sum up columns or rows for example, you may be already well on your way to trying CLAPTON's formula as an experiment in a formula in a cell referencing another cell in which you have typed the monthly interest rate.

Later versions of Excel will handle CLAPTON's ^ symbol seamlessly.

So for an experiment, if in an Excel worksheet cell A1 you have manually typed 1.8%, and in another cell next to it say cell B1 you have manually typed 23.5% as a rough estimate to be going on with, then you can come back to your rough estimate in cell B1 and start ruling the roost with some actual blindingly accurate calculations courtesy of CLAPTON and simply overtype your 23.5% with exactly this: =((1+A1)^12)-1 and the moment you hit Enter it will show 23.87%

CLAPTON

2sides2everystory wrote: »

Well some of what they might teach you at evening classes may help, but teaching yourself how to master CLAPTON's formula and also how to play with it in an Excel spreadsheet will assist you no end with your personal finance decisions.

Have you ever used Microsoft Excel and put some of your own financial numbers through their paces? CLAPTON's formula can quite easily be put into a spreadsheet. With your own numbers added, it can be very illuminating.

Maybe you don't know Excel yet. No matter. You can even input CLAPTON's formula using the calculator on your Windows computer (Click on Start/Run then type calc and then when the Calculator is open click on View in the menu and then select Scientific. You'll notice the Scientific View in Windows Calculator program has buttons for CLAPTON's brackets too. The button with xy on it is the one that does the same as CLAPTON's ^ symbol.

Example 1
Using the Windows calculator in Scientific View as above, take an example where your monthly interest rate is 1.8%

CLAPTON says you need to use ((1+x)^12) -1 where x is the monthly interest rate as a decimal.

Your x is 1.8% right? Yes but to express a percentage as a 'decimal fraction' you divide the percentage by 100 which simply moves the decimal point two places to the left so you get 0.018 . So x = .018

To convert it to the exact APR you do indeed use CLAPTON's formula and if you do it on the Windows Calculator you type

( ( 1 + . 0 1 8 ) then you hit the xy button which is CLAPTON's ^ and then you type 1 2 ) then type - 1 and finally type =

On the screen you will see 0.2387205315755279972962156695162 which you might only begin to recognise if you multiply it by 100 and that means simply move the decimal point two places to the right. You don't need to worry about quite so many figures after the decimal point of course, but you may soon realise that the APR you just calculated in this example where the monthly interest was 1.8% is actually a tad under 23.9% per year.


Example 2
Another example to try - If your monthly interest x is 1.5%, x expressed not as a percentage but as a simple decimal fraction becomes .015

In the Windows Calculator program, type

( ( 1 + . 0 1 5 ) then you hit the xy button which is CLAPTON's ^ and then you type 1 2 ) then type - 1 and finally type =

On the screen you will see 0.19561817146153525156129009790039 . Multiply that by 100 and you will realise you have calculated a number of a tad under 19.6 (per cent per year).

interesting to note that as you say 1.8% monthly is 23.9% APR
also 1.8% x 13 = 23.4% quite close


and 1.5% monthly is 19.6% APR

and 1.5% x 13 = 19.5% quite close

2sides2everystory

Yep ... as you say, there are shortcuts which often are useful approximations, but I find there's nothing like being able to nail it in a spreadsheet or calculator in order to "own it" :money: