This process is actually the inverse of finding the

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Unformatted text preview: erest rate, we need to solve Equation 4.24 for PMT. Isolating PMT on the left side of the equation gives us PMT PVAn PVIFAi,n (4.25) Once this is done, we have only to substitute the known values into the righthand side of the equation to find the annual payment required. EXAMPLE As just stated, you want to determine the equal annual end-of-year payments necessary to amortize fully a $6,000, 10% loan over 4 years. 162 PART 2 Important Financial Concepts TABLE 4.8 Loan Amortization Schedule ($6,000 Principal, 10% Interest, 4-Year Repayment Period) Payments End of year Beginningof-year principal (1) Loan payment (2) Interest [0.10 (1)] (3) Principal [(2) (3)] (4) End-of-year principal [(1) (4)] (5) 1 $6,000.00 $1,892.74 $600.00 $1,292.74 $4,707.26 2 4,707.26 1,892.74 470.73 1,422.01 3,285.25 3 3,285.25 1,892.74 328.53 1,564.21 1,721.04 4 1,721.04 1,892.74 172.10 1,720.64 —a aBecause of rounding, a slight difference ($0.40) exists between the beginning-of-year-4 principal (in column 1) and...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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