How does a calculator work?

How does a loan calculator work? It's urgent. Yahoo Small Business Advisor Tools: Loan Calculator

• How does the value change when the additional monthly payment value is changed?

• Answer:

  I guess it work like this.. Suppose you have an outstanding loan of X0 at the starting of a month and you are paying an EMI of E. It will calculate the interest (compound) of this amount in a month and let it be I0 which is a function of X0. The outstanding loan amount after a month will be X0 - (E-I0). This is repeated every subsequent month with new value of outstanding loan to be X1 = X0 - (E - I0). In general we have XN = X(N-1) - (E - I(N-1)). We can express XN in terms of X0 and E. If the tenure of the loan is say M months, XM = 0 and we can solve for E. Or for a given E we can solve for M which makes XM = 0;