Calculating Financing Costs
When money is borrowed, interest is charged. How interest
is calculated is usually complicated. This exercise will only give you
a taste of how it's done in real life. This exercise serves as a
reminder that the cost of borrowed money must be included in any community
development finance project.
In the following example, the lender calculates the interest charge by multiplying the entire loan amount by the interest rate.
Example:
|
Loan Amount |
Interest Rate |
Term |
Financing Costs |
|
$10,000 |
5% |
12 months |
$500 |
Formula: 10,000 x .05 = 500
Now it's your turn.
What will be the financing cost for each of the following? Fill in the
blank space with your answer.
|
Loan Amount |
Interest Rate |
Term |
Financing Costs |
|
$50,000 |
5% |
12 months |
|
|
$50,000 |
8% |
12 months |
|
|
$50,000 |
9% |
12 months |
|
|
$150,000 |
10% |
12 months |
|
|
$250,000 |
10% |
12 months |
|
|
$500,000 |
12% |
12 months |
|