1

I have a system that calculates the effective yield. The problem is what formula does the system used to calculate the effective yield. I am trying to convert the system into a mobile application. I am trying to get the formula used. The formula used they said is from the excel function's Rate

Image of the system

Details:

  1. Start Date: 10/15/2019
  2. End Date: 10/15/2019
  3. Interest Rate: 12%
  4. Term: 12 Months
  5. Loan Amount: 900,000
  6. Repayment Amount: 84,000
  7. Effective Yield: 21.457184
0

The rate is the rate such that the present value of outflows (payments) is equal to the present value of the amount(s) borrowed.

The present value of a cashflow is:

c / (1+r/c)^(t*c)

Where c is the amount of the cashflow, r is the rate, c is the number of compounding periods per year, and t is the number of years.

Once your calculation is set up to calculate the present value of the cashflows as a function of r, you can use a binary search or other algorithm to guess and check r values until you find the one that results in 0 net present value.

0

With the following variables

s = loan amount
r = monthly loan rate
n = number of months
d = monthly payment

the standard loan equation is

loan equation

s = 900000
n = 12
d = 84000

(d - d (r + 1)^-n)/r - s = 0

Note, this cannot be manipulated to an expression for r.

You can use a solver in your program. E.g. Math.NET Root finding

RealRoots.OfFunction(r => (d - d * Pow(r + 1, -n)) / r - s, 0, 0.5)

Solving for r

∴ r = 0.0178809869

12 r = 21.457184 %

Or in Excel

=RATE(12,-84000,900000)*12

21.457184 %

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.