The EAR thus calculated is found to be 2499.48%. The final rate to be calculated is the EAR, the Effective Annual Rate for which the formula used is the value of the period rate subtracted from 1 and the exponent of this value with the number of periods in a year and finally subtracting the value by 1. The next step he says is to calculate the APR or the nominal rate which is the period rate times the number of periods in a year. It is calculated by dividing 365 by 25 and the resulting value is 14.60. Next he tells you to find out the total number of periods in a year. The interest rate happens to be 25% which is terrible. Next he calculates the 25 day interest rate by dividing the future value by the present value and subtracting it by 1. HE has got the data ready there, the period of the loan which is 25 days, the check amount that will be cashed in the future which is $250 the future value and the loan amount you get today which is $200 the present value.
Now he teaches us hot to calculate APR and EAR.
He gives us an example where you give the lenders a check of $250 that has a date 25 days in future and get $200 loan today. He first starts with the nominal & effect & future value tab. The person presenting the video has got his MS Excel sheet with all the formulas and data ready.
The video demonstrates the way of calculating the interest rates for payday loans using MS Excel.
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