Scribd
Upload
13 views17 pages

Amortization

Uploaded by

baternaangelmaeavila
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
13 views17 pages

Amortization

Uploaded by

baternaangelmaeavila
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 17

AMORTIZATION

PRESENTED BY: BATAD, DARILYN


CORTES, REY
DAVID, CHERRY ROSE
Amortizatio
The amortization method broadly refers to the
n
discharging of a debt by means of a set of regular
or irregular and equal or unequal payments. In this
chapter, only a debt discharged by a sequence of
equal payments at equal intervals of time is
considered. In order to discharge a debt, each
payment must be greater than the periodic interest,
so that a part of the payment applies to the interest
and the remainder applies to the principal until the
principal becomes zero.
Amortization Payment Using the Table

With amortization, the original amount of the loan or


obligation is known (present value). Amortization
payment is found by dividing the present value of
the obligation by the present value table factor, or

Amortization payment
Example 1: What amortization payments are required each month,
at 12% interest, to pay off a P10,000 loan in 2 years?

This amortization is for 24 periods (2 years x 12 periods per


year) at 1% per period (12% ÷ 12 periods per year). From Table 4,
the present value table factors 21.243387.

Amortization payment

Amortization payment

Amortization payment = P470.73


Value of
Example 2: Calvin purchased P1,200,000 worth of gym exercisers
and made a P200,000 down payment. He agreed to pay the balance
by making equal payments at the end of each month for 15 years. If
the interest charged is 12% compounded monthly, what is the size
of the monthly payment?

Here, PV P1,000,000 (1,200,000-200,000); i = 1% (12% ÷


12); n = 180 (15 x 12). From Table 4, the table factor is 83.321664.

Amortization payment

Amortization payment

Amortization payment = P12,001.68


Amortization Payment Using the Formula

Amortization payments may be computed by using the


formula

Amortization payment

Where;

PV = amount of the loan or obligation


i = interest rate per period (nominal rate periods per year)
n = number of periods (years x periods per year)
Example: What amortization payment is required each month, at 18%
interest, to pay off P50,000 in 3 years?

Here, 1.5% (18% ÷ 12) interest rate per period and 36 periods (3 years x 12
period
per year) are used.

Amortization payment = Present value

Amortization payment = 50000

Amortization payment = 50000

Amortization payment = 50000 0.0361524

Amortization payment = P1,807.62


Outstanding Principal

Oftentimes both the creditor and the borrower must know


the amount of the outstanding principal or the unpaid
balance on a certain date. The information may be
needed for various reasons: it may be necessary for
accounting purposes; the creditor may want to sell the
unpaid balance; the borrower may wish to know his or
her equity an investment (such as house purchase price
minus unpaid balance), or the creditor and the borrower
may agree to settle the balance on an earlier date The
outstanding principal may be determined under two
types of arrangements: (a) all periodic payments are
equal, or (b) all periodic payments, except the final
All Periodic Payments are Equal

When it is necessary for all the periodic


payments to be the same, the method given
in Example 2 (under amortization payment
by table) should be used to find the size of
payments. The outstanding principal on a
certain date is the present value of an
annuity formed by the remaining unpaid
payments, as shown below.
Example: Refer to example 2. Find the outstanding
principal after Calvin made the monthly payments for 10
years. Here, Pmt = P12,001.68; i = 1% (12% ÷ 12); n = 60
(180-120). From Table 4, the table factor 44.955038.

Outstanding principal = 12,001.68 x 44,955038


Outstanding principal = P539, 535.98

Instead of using the table as presented in the previous


example, the outstanding principal on a certain date may
be obtained by constructing an amortization schedule such
as that shown in the next example.
Example: A debt of P40,000 is to be amortized by equal payments at
the end of every quarter for 1½ years. If the interest charged is 12%
compounded quarterly, find the outstanding principal after each
payment is made.

The outstanding principal is computed by first finding the size of the


periodic payment and then constructing an amortization schedule.
Here, PV = P40,000; I = 3% (12% ÷ 4); n = 6(1½ x 12). From Table 4,
the table factor is 5.417191.

Amortization payment =

Amortization payment =

Amortization payment = P7, 383.90


All Periodic Payments Except the Final Payment
are Equal

Sometimes the size of each payment is not


obtained by the method explained in the previous
section. Instead, it is specified by the agreement
between the creditor and dec debtor, and a more
convenient or rounded figures, such as P500 or P1,000,
is decided upon as the size of each payment. The exact
size of the final payment is not known. It may not equal
the size of other payments. The exact size of the final
payment may be known by constructing an
amortization schedule.
Example: A debt of P60,000 is to be
discharged by payments of P10,000 at the
end of every month. Interest charged is
12% compounded monthly. Find (a) the
number of payments, (b) the outstanding
principal after each payment is made, (c)
interest included in each payment, (d) the
principal included in each payment, and the
(e) the size of the final payment and the
total of the payments.
THANK YOU
FOR LISTENING

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy