Some nontrivial properties of a formula for compound interest

Isaac M. Sonin; Mark Whitmeyer

doi:10.1016/j.frl.2019.06.015

Some nontrivial properties of a formula for compound interest

Research output: Contribution to journal › Article › peer-review

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.

Original language	English (US)
Article number	101217
Journal	Finance Research Letters
Volume	33
DOIs	https://doi.org/10.1016/j.frl.2019.06.015
State	Published - Mar 2020
Externally published	Yes

Keywords

Compound interest
Loan repayment
Mortgages

ASJC Scopus subject areas

Finance

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10.1016/j.frl.2019.06.015

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title = "Some nontrivial properties of a formula for compound interest",

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.",

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author = "Sonin, {Isaac M.} and Mark Whitmeyer",

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year = "2020",

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doi = "10.1016/j.frl.2019.06.015",

language = "English (US)",

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AB - 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.

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KW - Loan repayment

KW - Mortgages

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VL - 33

JO - Finance Research Letters

JF - Finance Research Letters

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Some nontrivial properties of a formula for compound interest

Abstract

Keywords

ASJC Scopus subject areas

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