Calculation of Interest Using Products/Balances
The Product Method is a way to calculate interest on loans or deposits by multiplying the outstanding balance by the number of days it remains in the account. The daily product is the balance amount multiplied by the number of days it was outstanding. Summing these daily products over 30 or 31 days yields the…
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Front-End and Back-End Interest Rates Explained
Front-end interest rate refers to the advertised nominal interest rate on a loan. This rate represents the base cost of borrowing and does not include additional fees or charges associated with the loan. It excludes expenses such as loan processing fees, legal fees, valuation fees, mortgage fees, and other related costs. Back-end interest rate, also…
Read article Theorems for Bond Valuation and various approaches explained with illustrations
Bond valuation is a technique for determining the theoretical fair value of a particular bond. Bond valuation comprises calculating the present value of future interest payments and face value to determine a bond’s theoretical fair value. The bond’s future interest payments also known as its cash flow, and the bond’s value upon maturity also known…
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Understanding Classification of Ratios
Ratios are essential tools for evaluating a business organization’s earning capacity, financial health, and operational efficiency. They express the relationship between two related financial items. When calculated using accounting information, they are referred to as Accounting Ratios. Ratios can be classified in two ways: A) Traditional ClassificationB) Functional Classification A) Traditional Classification This classification is…
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Bank Finance: Assessment of working capital Limits
Working capital is a financial metric that measures a company’s short-term liquidity and ability to pay its bills. It’s calculated by subtracting current liabilities from current assets. The credit limits are normally considered by the banks on the basis of annual statements of accounts or other documents such as returns filed with sales-tax (GST) /…
Profit maximization and wealth maximization concepts explained
Profit maximization and wealth maximization are two different financial strategies that aim to increase a company’s value, but they do so in different ways. In economics, profit maximization is a term which denotes the maximum profit to be earned by a company in given period of time. The concept of profit maximization focuses generally on…
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