Lec9 - Lecture 9 page 68 Time Value of Money - Part III...

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Lecture 9 page 68 Time Value of Money - Part III Amortizing Loans A loan that is repaid in equal payments over its life and where the repayments include interest and principal is called an amortizing loan . Example 23: You take a car loan for $5,000 that will be paid off in three annual payments. The payments occur at the end of each year and the annual interest rate is 7%. TIMELINE: What is the amount of each payment? How much of each payment is interest expense? PV = r = M = N = + - = M r M r PMT PV N / ) / 1 /( 1 1 $ , which we want to solve for PMT: = + - = M r M r PV PMT N / ) / 1 /( 1 1 This is the amount of each of the three annual payments. This formula can be used to compute the amount of each payment for any amortizing loan. How can we compute the amount of interest and principal for each loan payment? - Richard T. Bliss, Babson University and Terry D. Nixon, Miami University
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Lecture 9 page 69 AMORTIZATION TABLE (a) (b) (c) (d)
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This note was uploaded on 10/19/2011 for the course FINANCE 301 taught by Professor Nixon during the Fall '11 term at Miami University.

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Lec9 - Lecture 9 page 68 Time Value of Money - Part III...

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