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st: RE: Calculating compound interest using loops?


From   Lance Erickson <lance_erickson@byu.edu>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   st: RE: Calculating compound interest using loops?
Date   Mon, 9 Jul 2012 21:42:44 +0000

Hi Sara,

Something like this (below) should give you a more efficient version of the code you had.

Best,
Lance


// create test data
clear
input id principal rate payment
1 200000 .005 1199.1
end

// get amount of monthly interest
local interest = 0
forvalues i = 1/360 {
	local j = `i' - 1
	gen int`i' = (principal - (payment*`j') + `interest') * rate
	local interest "`interest' + int`i'"
}

// get amount of yearly interest
local l = 1
foreach k of numlist 12(12)360 {
	local m = `k' - 11
	egen int_y`l' = rowtotal(int`m'-int`k')
	local ++l
}

-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Sara Kimberlin
Sent: Monday, July 09, 2012 1:23 PM
To: statalist@hsphsun2.harvard.edu
Subject: st: Calculating compound interest using loops?

Hello,

I'm trying to calculate annual interest payments on a 30-year loan, with interest compounding monthly, and can't figure out how to write the code efficiently.

Pre-defined variables include principal, rate, and monthly_payment.  I know I can manually calculate the amount of interest for each monthly period like this:

gen interest_month1 = principal * rate

gen interest_month2 = (principal - (monthly_payment * 1) +
interest_month1) * rate

gen interest_month3 = (principal - (monthly_payment * 2) +
interest_month1 + interest_month2) * rate

gen interest_month4  = (principal - (monthly_payment * 3) +
interest_month1 + interest_month2 + interest_month3) * rate

... and so on through interest_month360.

And then I can manually add up the monthly interest to calculate the annual interest for each year, e.g.:

gen interest_year1 = interest_month1 + interest_month2... + interest_month12

But I think there must be a way to write this much more efficiently using loops, and I haven't been able to figure it out.  I'd appreciate any help.

Thank you,
Sara
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