BBus4
Sneha Selvaraj 33057212
Foundational Mathematics for Business
(Class C)
Name:
Sneha Selvaraj
Murdoch ID:
33057212
Kaplan ID:
CT0261451
Lecturer:
Lonas Lee
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BBus4
Sneha Selvaraj 33057212
Question 1:
Amortization is a term used in finance which refers to the process of allocating the cost of an
intangible asset over a period of time. It is actually a repayment of lean principle over that
time (Marcie 2011).
Loan Amortization Schedule
Column1
Borrowed Amount
(A)
$500,000.00
n = 240 total number of
periods
Interest rate
i
2% per annum
i = 0.02/12
Compound frequency per year
12
i =0.0016667 monthly interest
Term
n
20 years
Repayment
R
$2,529.42
R= $2529.4166752 regular
payment
i
i
A
R
n
)
1
(
1
Where:
A
= present value (borrowed amount)
R
= annuity payment per period
i
= interest rate per period
n
= number of payments
R
=
A
[
1
−(
1
+
i
)
−
n
i
]
R
=
500000
[
1
−(
1
+
0.0016667
)
−
240
0.0016667
]
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BBus4
Sneha Selvaraj 33057212
Payment Schedule for the First SIX Months:
Payment
Number
Opening
Payment
Interest
Principal
paid
Closing
balance
1
$500,000.0
0
$2,529.42
$833.33
$1,696.08
$498,303.92
2
$498,303.9
2
$2,529.42
$830.51
$1,698.91
$496,605.01
3
$496,605.0
1
$2,529.42
$827.68
$1,701.74
$494,903.26
4
$494,903.2
6
$2,529.42
$824.84
$1,704.58
$493,198.69
5
$493,198.6
9
$2,529.42
$822.00
$1,707.42
$491,491.27
6
$491,491.2
7
$2,529.42
$819.15
$1,710.26
$489,781.00
Payment Schedule for the Last SIX Months
:
Payment
Number
Opening
Payment
Interest
Principal
paid
Closing
balance
235
$15,088.36
$2,529.42
$25.15
$2,504.27
$12,584.09
236
$12,584.09
$2,529.42
$20.97
$2,508.44
$10,075.65
237
$10,075.65
$2,529.42
$16.79
$2,512.62
$7,563.03
238
$7,563.03
$2,529.42
$12.61
$2,516.81
$5,046.21
239
$5,046.21
$2,529.42
$8.41
$2,521.01
$2,525.21
240
$2,525.21
$2,529.42
$4.21
$2,525.21
$0.00
Hence we can see that at the end of 240
th
month the closing balance is
$0.00.
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Sneha Selvaraj 33057212
Part B:
Floating rate:
Floating interest rate is an adjustable or variable interest rate that can change from time to
time during debt obligation ("Home Loans: Fixed Vs Floating Rates NDTV" 2017).
Depending on the index interest rate will change. An exception is that floating rate is cheaper.
Fixed rate:
Fixed interest rate is an interest rate on loan or mortgage for which the rate of interest does
not fluctuate over the entire term of the loan. The fixed interest rate doesn’t change for a
specified duration ("Home Loans: Fixed Vs Floating Rates NDTV" 2017). Fixed rate is much
better because of the stability of the payment over the period of time.
Floating Rate Package for DBS:
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Sneha Selvaraj 33057212