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Some nontrivial properties of a formula for compound interest

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  • Sonin, Isaac M.
  • Whitmeyer, Mark

Abstract

We analyze the classical model of compound interest with a constant per-period payment and interest rate. We examine the outstanding balance function as well as the periodic payment function and show that the outstanding balance function is not generally concave in the interest rate, but instead may be initially convex on its domain and then concave.

Suggested Citation

  • Sonin, Isaac M. & Whitmeyer, Mark, 2020. "Some nontrivial properties of a formula for compound interest," Finance Research Letters, Elsevier, vol. 33(C).
  • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612318307189
    DOI: 10.1016/j.frl.2019.06.015
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    References listed on IDEAS

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    More about this item

    Keywords

    Mortgages; Loan repayment; Compound interest;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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