Comment by GeoAtreides
7 hours ago
> As a mathematician, I had trouble understanding how banks calculate it (as they would obviously not point me at the derivation of the formula)
This is not true? The formula is well known:
A = P*e^(rt)
where"
A = Final amount
P = Principal (initial investment/loan)
r = Annual interest rate (as a decimal)
t = Time in years
e = Euler's number
A loan is subdivided and sold in different allotments each year at a different interests rate, principal, and terms. You want to sell the entire debt at some point in the future. How do you calculate the price such that you don’t sell at a loss?
Why does that formula work? ;)
I did not say "derivation of the formula" by accident: this is about why would this produce something that makes sense as "interest-as-percentage"?
That is the integral
You're assuming banks use that formula and not just YOLO it, "haha fuck you pay me more".
If you learnt calculus, you could check their work and see that it's accurate. And it only takes algebra and a few minutes of work to see that your bank statements match the formula that's been given.
I know calculus, and I also know that mortgage payments don't follow that formula - or, maybe they do but they're so buried in noise and extra charges and costs you'd never know it.