the villager said, “i would, but i don’t have the money.”
the banker said, “i could lend you the money.”
the villager said, “what’s the catch?”
the banker said, “only that you have to pay me back a little more than i paid you.”
the villager said, “how much more?”
the banker said, “simply put, the size of your regular payment would be calculated by taking the amount you borrow and multiplying it by the product of an interest rate which would be periodically adjusted based on an index which reflects my cost of borrowing on the credit markets divided by the number of payments per year multiplied by the sum of one plus the aforementioned interest rate, which is still divided by the number of payments per year, then taken to the power of the number of total payments, all divided by the sum of one plus the aforementioned interest rate, again still divided by the number of yearly payments, then taken to the power of the number of total payments, minus one. the sum of this formula iterated for each payment minus the initial loan would be your total cost.”
