Weighted Average Interest Rate Calculator

Weighted Average Interest Rate Formula:

\[ \text{Weighted Rate} = \frac{\sum (P_i \times R_i)}{\sum P_i} \]

Principal Amount (P₁):

Interest Rate (R₁):

Weighted Average Interest Rate:

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1. What is Weighted Average Interest Rate?

The Weighted Average Interest Rate calculates the average interest rate across multiple loans or investments, where each rate is weighted by its principal amount. This provides a more accurate representation of your overall interest burden or return than a simple average.

2. How Does the Calculator Work?

The calculator uses the weighted average formula:

\[ \text{Weighted Rate} = \frac{\sum (P_i \times R_i)}{\sum P_i} \]

Where:

$ P_i $ — Principal amount of loan/investment i ($)
$ R_i $ — Interest rate of loan/investment i (%)
$ \sum $ — Summation across all loans/investments

Explanation: The formula calculates the proportion of each loan's contribution to the total principal and applies that weight to its interest rate.

3. Importance of Weighted Average Interest Rate

Details: This calculation is crucial for financial planning, debt management, and investment analysis. It helps individuals and businesses understand their true cost of borrowing or overall return on investments when dealing with multiple financial instruments.

4. Using the Calculator

Tips: Enter the principal amount and interest rate for each loan or investment. You can add multiple entries using the "Add Another Loan" button. All principal values must be greater than 0, and interest rates should be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: Why use weighted average instead of simple average?
A: Weighted average accounts for the size of each loan/investment, giving more importance to larger amounts, which provides a more accurate overall rate.

Q2: Can this calculator handle different currencies?
A: The calculator works with any currency as long as all principal amounts are in the same currency unit.

Q3: How many loans/investments can I calculate?
A: You can add as many as needed, though extremely large numbers may affect performance.

Q4: Does this work for both loans and investments?
A: Yes, the formula applies to both debt (loans) and assets (investments).

Q5: Can I use this for APR calculations?
A: This calculates the average nominal rate. For APR including fees, additional calculations would be needed.