Multiple Contracts with Simple Interest: The Case of Constant Payments
Abstract
Repeatedly, the Brazilian Judicial System has determined that home-financing contracts written in terms of compound interest, particularly in the case of constant payments, should be substituted by contracts specifying simple interest. This has resulted in the adoption of a procedure known as the “Gauss’ Method”. It is shown that the implementation of a multiple contracts’ version may imply substantial fiscal gains, depending on the financing institution opportunity cost.
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