Hello, I have a question regarding Pset 1 part C.

I don't understand the calculation of the Monthly payment upper bound.

(Balance * (1 + (Annual interest rate / 12)) ** 12) / 12

Why is the exponent 12? Can someone please explain it to me? Thank you!

Question

Hello, I have a question regarding Pset 1 part C.

I don't understand the calculation of the Monthly payment upper bound. 

(Balance * (1 + (Annual interest rate / 12)) ** 12) / 12

Why is the exponent 12? Can someone please explain it to me? Thank you!

espex · Answer

The exponent is 12 because you are calculating it over a period of 12 months.

anonymous · Answer

http://en.wikipedia.org/wiki/Compound_interest#Simplified_calculation

anonymous · Answer

Ahhh right, it calculates the compounding interest. Thanks!