Example 16 - US Rule with Some Specified Payment Amounts

This example applies to our online demo Time Value of Money Calculator. The C-Value! program for Windows works in a similar way and has a few more features. Note, our online demo TVM calculator is limited to calculations using interest rates between 4.0% and 5.99%

Note: This topic has not been proofed and images need to be added. However, we believe that the steps are complete and accurate.

Simple interest or US Rule loan with the first six payments made at a predetermined (not calculated) fixed amount.

1. Click the [New] button to clear any previous entries.
3. Set "Rounding" to "Ignore" by either:

• clicking on the "Rounding" button on the toolbar;
• clicking on the {Compute} menu choice and select {Rounding...};

1. Background: When the normal compute method is selected, if a payment is not large enough to pay the interest due for the period, then interest will accrue on the unpaid interest. When the US Rule compute method is selected, interest will NOT accrue on unpaid interest. In the US, settlement of court judgments paid over time, often have to be calculated using the US Rule. C-Value!'s schedule will show you the unpaid interest.
2. For greater detail about how values are entered into C-Value!, please see "Example 1 - conventional mortgage or loan".
3. 1) Open the C-Value! Setup Window. Press either [F6] or select {Settings}{Compute Setup} from the menu.
4. A) For the "Compute Method" select "U.S. Rule – Simple Interest" option.
5. B) Click on the [OK] button to close the Window.
6. C) Please notice that the status bar at the bottom of the main window should now say "U.S. Rule (no compounding), 360 Day Year.
7. 2) Set compounding to "Monthly".
8. 3) Enter 6.000% for the "Nominal Annual Rate".
9. 4) Create a "Loan" event in row one of the cash flow input area.
10. A) Set the "Date" to July 1, 2004 (07/01/2004)
11. B) Set the "Amount" to 35,000.00
12. C) Set the "# Periods" to 1.
13. 5) Move to the second row of the cash flow input area. Select "Payment" for the "Event" type. For this example, we will assume we want to create a schedule for a 5-year loan (60 monthly payments).
14. A) Set the "Date" to August 1, 2004 (09/01/2004)
15. B) It has been agreed that the first six payments will be $150. Set the "Amount" to $150.00
16. C) Set the "# Periods" to 6.
17. 6) Move to the third row of the cash flow input area. Select "Payment" for the "Event" type.
18. A) Set the "Date" to February 1, 2005 (02/01/2005)
19. B) Set the "Amount" to "Unknown" by typing "U".
20. C) Set the "# Periods" to 54.
21. 7) Calculate the unknown. The result is $744.35
22. 8) If you want to see a detailed amortization schedule showing how the monthly payment is allocated between principal and interest click on the "Amortization" tab above the input area or press [F4].
23. Notice that the first six payments are not large enough to pay even the interest due for the period. (The loan is a negative amortizing loan at this point. The principal balance is increasing.) The "Interest Accrued" column shows the interest due each period and the "Interest Paid" column show the interest actually paid. We know that there is no interest being charge on unpaid interest because the interest accrued each period is constant for the first six periods, even as the interest balance is increasing. After six payments, the unpaid accrued interest balance is $150.00 while the principal balance is still the original $35,000.00. Thus the total outstanding balance after six payments is $35,150.00. Finally, in the seventh period, when the payment increases to $744.35, the accrued interest for the period as well as the prior interest balance is paid in full, and there is even some monies available to pay down the principal. From this point forward, normal amortization is occurring.

Back to the online Time Value of Money Calculator.