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**Unformatted text preview: **column 4) increases. This
pattern is typical of amortized loans; as the principal is reduced, the interest component declines, leaving a larger portion of each subsequent loan payment to
repay principal.
Spreadsheet Use The annual payment to repay the loan also can be calculated
as shown on the first Excel spreadsheet. The amortization schedule allocating
each loan payment to interest and principal also can be calculated precisely as
shown on the second spreadsheet. CHAPTER 4 Time Value of Money 163 Interest or Growth Rates
It is often necessary to calculate the compound annual interest or growth rate
(that is, the annual rate of change in values) of a series of cash flows. Examples
include finding the interest rate on a loan, the rate of growth in sales, and the rate
of growth in earnings. In doing this, we can use either future value or present
value interest factors. The use of present value interest factors is described in this
section. The simplest situation is one in which a person wishes to find the rate of
interest or...

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