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

 

Answers

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