ModeldrillInterest on the average balance
A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.
The task
A loan is repaid on the schedule in row 6. Fill the opening balance for 2027 onward (row 5), the closing balance (row 7), the average of opening and closing (row 8), interest at the rate in B2 on that average (row 9) and, in row 10, how much lower that interest is than interest charged on the opening balance.
What this exercise teaches
Charging interest on the average balance matches a loan that is paid down through the year. It is safe here because the repayments are fixed. Once repayments depend on cash after interest, the average method creates a circular reference and models fall back to the opening balance or an iteration switch.
A hint if you get stuck
Average debt is (opening + closing) / 2. The saving is interest on the opening balance less interest on the average, which comes to half the repayment times the rate.
Try it now, free, no account needed
The first 15 tasks on Modeldrill are free. Open it on the practice page, solve it, and get instant feedback with a hint. A free account adds the worked solution; Pro adds timed mode and the certificate.
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