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Forms of Borrowing Contracts

Forms of Borrowing Contracts - Forms of Borrowing Contracts...

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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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2. 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 Proceeds = $100,000
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3. Note with regular interest payments and principal payment at maturity (the “bond” in the textbook) . As an example, assume a $100,000, 6%, 5-year bond with
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