MOI
Amortization( Finding the amortization_amor. table)

# Amortization( Finding the amortization_amor. table) -...

• 24

This preview shows pages 1–8. Sign up to view the full content.

Amortization hapter4. ppt

This preview has intentionally blurred sections. Sign up to view the full version.

Amortization refers to the process of liquidating by installment payments at a regular interval a loan or debt, including the interest charges. This implies that by the process of amortization, the principal and the interest are reduced by a series of installments made at the beginning or at the end of the payment interval or at some later date . Mathematics of investment _Procedural Approach By: Nick L. Alduna NATURE OF AMORTIZATION
A .) The present value (P) = A x B .) The amortization (A or R ) or Annuity ( A ) = Where:: A - is the amount of amortization/periodic payment P – present value or original loan i - interest rate n – total no. of periodic payments Note : In Amortization, P is given Amortization formulas are based on Annuities xamples are from Ordinary Annuity Formulas

This preview has intentionally blurred sections. Sign up to view the full version.

The Barretos borrowed \$120,000 from a bank to help finance the purchase of a house. The bank charges interest at a rate of 9% per year on the unpaid balance , with interest computations made at the end of each month . The Barretos have agreed to repay the loan in equal monthly installments over 30 years. How much should each payment be if the loan is to be amortized at the end of term? Applied Example #1: Home Mortgage Payment
Solution: Here, P = \$120,000 , i = j / m = 0.09/12 = 0.0075 , and n = (30)(12) = 360 . Using the amortization/ annuity formula we find that the size of each monthly installment required is given by = = A = \$965.55 monthly installment/amortization Applied Example: Home Mortgage Payment cont..

This preview has intentionally blurred sections. Sign up to view the full version.

The Jacksons have determined that, after making a down payment , they could afford at most \$2000 for a monthly house payment . The bank charges interest at a rate of 7.2% per year on the unpaid balance , with interest computations made at the end of each month. If the loan is to be amortized i n equal monthly installments over 30 years , what is the maximum amount t hat the Jacksons can borrow f rom the bank? Applied Example #2: Home Affordability
Solution: We are required to find P , given i = j / m = 0.072/12 = 0.006, n = (30)(12) = 360, and A = 2000 . We first solve for A in the amortization formula (P) = x = 2000 x A = \$ 294,643 Therefore, the Jacksons can borrow at most \$294,643.

This preview has intentionally blurred sections. Sign up to view the full version.

This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern