&quot;Forms of Borrowing Contracts

# &quot;Forms of Borrowing Contracts - Forms of Borrowing...

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Forms of Borrowing Contracts 1. Zero coupon note . As an example assume a \$100,000, 6%, 5-year zero coupon note with annual compounding. proceeds \$100,000 Proceeds = (\$100,000)(PVsa, n=5, i=6%) = (\$100,000 x .7473) = \$74,730 Effects on the accounts at borrowing: A = L + C/S + R – X – D + G – L Cash +74,730 N/P +100,000 (DN/P +25,270) -or- Effects on the accounts at borrowing: A = L + C/S + R – X – D + G – L Cash +74,730 N/P +74,730 See associated Excel spreadsheet for interest amounts and principal increases. Page 1

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Note with regular principal and interest payments (Mortgage) . As an example assume a \$100,000, 6%, 5-year mortgage note with annual compounding \$100,000 = (payment)(PVa, n=5, i=6%) = (payment)(4.2124) = payment = \$23,739 Effects on the accounts at borrowing: A = L + C/S + R – X – D + G – L +100,000 M/P +100,000 See associated Excel spreadsheet for interest amounts and principal increases. Page 2
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## This note was uploaded on 04/09/2011 for the course MGMT 351 taught by Professor Staff during the Winter '08 term at Purdue.

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&quot;Forms of Borrowing Contracts - Forms of Borrowing...

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