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JOURNAL OF ACCOUNTING AND FINANCE
The Useful Algebraic Formulae for Interest
Computation in Financial Decisions
Author(s): Keishiro Matsumoto, Robert W. Hull, Christy Vineyard, Sharon A. Simmons
Citation: Keishiro Matsumoto, Robert W. Hull, Christy Vineyard, Sharon A. Simmons, (2013) "The Useful Algebraic Formulae for Interest Computation in Financial Decisions," Journal of Accounting and Finance, Vol. 13, Iss. 3, pp. 67 - 85
Article Type: Research paper
Publisher: North American Business Press
Abstract:
A new theory of term loans is proposed and proved in this paper. The algebraic formulae to compute the
loan balances of popular term loans and their interest expenses are derived from the theory. Excel users
can utilize the formulae in calculating tax savings on accrued interest in refinancing analysis without
undue hardship. Furthermore, it is typically necessary to conduct a sensitivity or simulation analysis
since key variables involved in financial decisions are often subject to uncertainty. The new formulae will
make the use of an amortization schedule obsolete in computing interest expenses. The new method
should be of great value in pedagogic settings, since computational tedium is replaced by a more
intellectually stimulating effort to understand the logic behind the formulae. It is also indispensable for
software engineers developing computer programs to solve application problems in these areas because
the formula approach absolutely supersedes in numerical efficiency the traditional method based on an
amortization schedule.
