How Do You Calculate A Monthly Interest Amount On A 5 Year Loan With A Simple Interest Loan?
I calculated the simple interest for a one million dollar loan, @ 7.5 % for 5 years ($375,000). But now I need to convert that interest into a monthly mount. Do I just divid the $375,00 by 60 to get the montly interest amount or is there another formula?
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Dividing $37,500 by 60 would be a mathematically correct way of calculating monthly interest amount but financial analysts recommend dividing the yearly interest rate by 12 (number of months) instead. In this case dividing 7.5% by 12 would give us a monthly interest rate of 0.625%. Thus you will be earning [$1,000,000 * 0.0625%] which is $6,250 per month as interest income.
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