[Help] How to Calculate the Present Value of the Interest Portion on a Loan Between Two Interest Rates?
I am doing this to show what the dollar cost difference would be to a friend in order for him to better understand the power of compound interest and how a few points make a difference.
What I did was make an amortizing table for loan A and loan B with rates R1 and R2. Both loan amounts are equal. Then I took each individual monthly interest payment by discounting it by the effective monthly periodic Bank of Canada overnight rate (I used BoC instead of treasury because this is in Canadian dollars). Then I summed the PV interest payments from loan A and loan B and found the present value dollar cost difference between the two rates.
Is my logic correct in using the BoC rate? What rate should I use as a default two discount the two different interest payments in order to compare them to one another?