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Solving the TVM equation for the interest rate
02-12-2020, 05:25 PM (This post was last modified: 02-12-2020 05:35 PM by Albert Chan.)
Post: #19
RE: Solving the TVM equation for the interest rate
This formula is based on Pade[1,1], I centered 0, of NFV = F + P + ((1+I)^N-1)*(P+M/I)

Solving Pade[1,1] approximated NFV = 0, for 1/I :

\( \Large {1\over I} ≈
{\binom{N}{3}M + \binom{N}{2}P \over \binom{N}{2}M + \binom{N}{1}P} -
{\binom{N}{2}M + \binom{N}{1}P \over F + P + M N}\)

Doing the same example, N=11, F=40000, P=0, M=-2564

1/I ≈ (-423060/-141020) - (-141020/11796) = 44102/2949

I ≈ 2949/44102 ≈ 6.687%, which under-estimated true rate (6.780%) by tiny 0.093%
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RE: Solving the TVM equation for the interest rate - Albert Chan - 02-12-2020 05:25 PM



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