Note: if you cannot remember how to model reducing balance systems with regular repayments, revise notes for 4.1 Modelling Compound Interest Systems with Regular Withdrawals.
Guidelines to using a Table for Compound Interest Systems with Regular Withdrawals
- Tables provide a convenient method for analysing compound interest systems with regular withdrawals, especially when there are regular systemic changes (e.g. the interest rate or withdrawals change regularly).
- The columns of the table should list, the compounding period, withdrawal, interest earned, principal addition (i.e. the amount the system has increased/decreased during each compounding period) and the balance at the end of the compounding period.
- The principal addition can be calculated as follows: