Interest rate calculations

[mtbc]

I was thinking how tricky interest rate calculations might be for institutions. One typically wants to quote an annual percentage but give interest more often than that. In terms of how the payments add up to the annual total, we certainly don't want that sum to be less than the quoted percentage but we would also rather it be as low as possible. Yet, when we pay interest, it's not like we pay exactly a twelfth root or whatever, or probably even calculate roots as precisely as we could, and we somehow round each payment to probably just a couple of places depending on the currency we're using. Further, absent withdrawals, the interest payments increase steadily due to compounding. In practice, I wonder how institutions deal with such payment calculations where each is rounded yet what matters is the sum of the payments.

Comments

[mtbc]

in Excel was the first red flag there. (-:

Recently I had one of my minions take some of our handwritten crypto code and replace it with having a popular library do the operation instead, another thing it's too easy to screw up. I suggested the route of: add tests to the existing code, see if they still pass with the new code.

[thewayne]

Hoboy!  Hand-written crypto!  DEFINITELY not a good idea!  Excel is fine for general purpose stuff, but when people rely on it for serious stuff, trouble can ensue.  Like when messing with genetics, or when 15 and 15.0 are different.