Posted by ReneeK/MI on March 27, 2009, 3:23 am, in reply to "Re: Shouldn't Step 3 ..."
68.43.29.109
The first formula (the 4 step one) - unless I'm missing it - isn't asking for the costs in any of the values. The costs are one of the known values, where is it being included?
The second formula - the Newton-Raphson Method - is a 2-part calculation, and you've only shown the 2nd part. The FIRST part is where the loan costs are used to calculate a value for "payment", to be used in the 2nd calculation.
Using the ACTUAL 'loan payment' in the 2nd calculation would only provide you with the actual Note interest rate, NOT the APR - because nowhere would the loan costs have been factored in.
That's what was really confounding me - where are the loan costs in these formulas? I Googled "Newton-Raphson Method, APR" and that's where I found the first part of the formula.
--Previous Message--
: --Previous Message--
: be the Amount Financed? Using the
: original loan amount would only give
: you the actual interest rate, not the
: APR.
:
: No. It is correct using the amount
: borrowed, or the loan amount, which is
: the present value of the loan.
:
: The RATE function is used to determine
: the corresponding rate necessary to
: produce a monthly payment of pmt on
: an original loan amount of pv .
:
: Try it on your own loan and see what
: numbers you get. It should provide
: you with the APR as shown on the TIL
: (assuming that the actuarial method
: and formula are used).
:
: The APR is calculated iteratively by
: solving the following equation using
: the Newton-Raphson method:
:
:
: where:
: C = Loan Amount
: P = Payment
: N = No. of Months (term)
: a = APR
:
: This post is strictly the opinion of
: the author
: and may not reflect the opinion of the
: management nor of any other user of
: this forum.
:
: Visit my website
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:
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:
: I am not an attorney licensed to
: practice law in the State of Florida,
: and I may not give legal advice or
: accept fees for legal advice.
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