Loan installment formula design

Reference no: EM1350312

In the formula as follows: 2 X Annual number of payments X Interest divided by (Total number of payments + 1) X Principal

2 X Annual number of payments is the numerator

and

Interest divided by (Total number of payments + 1) X Principal is the denominator)

In the numerator why is the number 2 there instead of 3 or 4 or -1.?

In the denominator why is it 2 X Annual number of payments (the numerator)...Why is the number 2 used instead of 3 or 4 or -2, etc.

Why is the formula designed the way it is as far as the number used in the numerator and the number used in the denominator? What is the logic or reasoning?

Reference no: EM1350312

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