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AIC 20 – C
Activity: APR Formula
The APR formula is a horribly daunting equation and not one an adviser should
ever consider working through with clients.
However, if a client expresses interest in the equation, even in passing, the
adviser has the option of showing them the attached handout.
This has the advantage of explaining why any APR activities are always
expressed in very general language.
In addition, an adviser can follow this with other resources and activities to show
the client that although the equation is daunting, it is quite easy to use the rule
of thumb. In this way, the adviser should stress that they are demystifying the
APR calculation.
©2015 Citizens Advice
CD1/Sep16/v2
Citizens Advice financial capability
APR is
Where:
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M is the number of cash flows paid by the lender
l is the sequence number for the cash flows paid by the lender (draw down)
S l is the cash flow (draw down) in period l
N is the total number of cash flows paid by the borrower
k is the sequence number of the cash flows paid by the borrower (repayment)
A k is the cash flow (repayment) of period k, and
t l and t k is the interval, expressed in years and fractions of a year between the date of the first cash flow and the date
of cash flow l or k. (t l,l=1 = 0)
©2015 Citizens Advice
CD1/Sep16/v2
Citizens Advice financial capability