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In Part I of this article, 4 “interest-related” questions was posted and thank to KH, Vai, KC Lau and Freeman of taking time to answer these questions. So now let’s reveal the “answers”:

Let say EPF has declared 5% dividend rate for the next 10 years, so what is your dividend rate for 10 years?

No you don’t get 50% returns; instead, you are getting a whopping 63% returns! The secret is compounded interest (as versus simple interest). We earn returns not only on the original investment, but also on the investment gains earned in earlier years. So if you have a habit of carrying forward credit card debt, you pay interest on both of the new purchases and on any previous month’s outstanding balance. Do not mislead by the “5% minimum payment” to stretch your payment period or postpones paying off credit-card debt. When compounded, that little 5% will ballooned and get of control pretty fast. The formula for calculating compounded interest is = Principal × ( 1 + Rate )^years

Now let say you want to borrow RM10,000 to renovate your house, assuming 12 months repayment, how much would you expect to pay back in total?

The responses from the readers vary from RM500 – RM900, or equivalent to interest rate of 5-9%. At one glance, these numbers are quite in-line with the current personal loan rate and thus seem like a ‘fair deal’. But if you were to calculate based on effective interest rate, for the RM500 interest, the effective interest rate is 8.09% and for the RM900, it is 13.57%! You are paying MORE than what you think.

The true is, we underestimated the cost of borrowing. But this is not our fault. The reason is simple -when we do our mental calculation; we overlook the fact that, with each monthly payment made, we’re effectively reducing the loan principle. With a short-term loan, as you gradually pay down your loan, the monthly repayments will take up a bigger portion of the outstanding principle. For example, at 5% quoted roulette rulesroulette gewinnenonline kasino spielen,online kasino,online kasino spielen auf deutschslots softwareonline baccaratpoker spielen ohne geldcard credit searsbad card credit credit unsecuredbank one credit card offerdebt management consolidation credit cardlow fixed interest credit cardassociate bank credit cardsears credit card account,account card credit sears,access account card credit searsuk lowest interest credit carddiscover credit card application,application card credit discover statuscredit card counseling,card consumer counseling credit report,card counseling credit debt madiscover credit card phone numberbad card credit credit studentcard credit point reward visa,visa reward credit cardassociate citibank credit cardchase credit card paymentcard credit history no visa,card credit credit history no,no credit history credit cardcard credit free machineapproval card credit instant onlineguaranteed credit card ukamerican card credit expressbest card credit rate transferuk credit card applicationlow interest credit card consolidation loan,card consolidation credit loanassociate national bank credit card,associate bank card credithousehold bank credit card servicesapplication card citi credit statuscredit card debt management services0 card credit interest ratetip on credit card consolidationcrazy download free frog ringtoneshotlink maxis caller ringtonespcs ringtones sprint vision,sprint pcs vision ringtonescomposer free nokia ringtonescell free lg phone ringtones,cell free lg phone ringtones verizon,free ringtones lg cell phonefree 50 cent ringtones,50 cent ringtones,50 cent mp3 ringtonesmessenger ringtones yahoo,ringtones yahoo yodel,yahoo ringtonesfree cingular cell phone ringtones,cell cingular free phone ringtones wireless,cell cingular free phone ringtonesdownload free nokia ringtonesmotorola ringtones makerfree lg ringtones verizon vx6000nokia 1100 ringtones,monophonic ringtones for nokia 1100,ringtones para nokia 1100cheap music ringtonesmetro pcs compatible ringtones,metro pcs ringtones,metro motorola pcs ringtonescingular media mall ringtones rate for a RM10,000 loan, the first RM875 payment is 8.3% of the principle borrowed. But when you are in your 4^th month payment, the same amount now is accounted for 11.1% of the balance. Therefore, you are no longer paying the 5% rate, but a higher one.

Remember, the fewer the number of monthly payments, the more we’re likely to underestimate the interest rate charged. So next time when you see “low monthly payment” in any personal loan advertisement be careful! Now, do you still think you are only paying 18% p.a on your outstanding credit card debt? (Effective rate calculation)

long it takes to double your RM1,000 FD with an interest rate of 3%?

The answer is 24 years (round up). The quick way to do this is using the “72 rule.” Simply divide 72 by the rate of return you expect to earn, that will tell you how long it takes to double your money. The implication: If you saved $1,000, rather than spending it, you would have roughly $2,000 after 24 years. But if the rate of return is 7%, it will only take 10 years, and an impressive $8,000 after 30 years. So next time if you are no sure whether to spend of to save, use the 72 rule to ‘imagine’ the money.

Answer “right” or “wrong” : “A short term loan i.e. loans that lasted only a few months is better than the longer one as I can save on the interest payment.”

This is a trick question – a trick question that always confused our brain. The answer is a short-term loan that promises a low monthly payment can be more costly than a long-term loan. The reason is same at the answer in Q2 above