3.4 Present Value of an Annuity; Amortization

Question 1

How do we find the present value of each PMT that is paid out during a time period

Answer 1

Actually, we are interested in finding the present value of each $1,000 that is paid out during the 3 years. We can do this by solving for P in the compound interest
formula:

Question 2

Theorm: Present value of an Odinary Annuity

Answer 2

Question 3

What is amortizing a debt?

Answer 3

In general, amortizing a debt means that the debt is retired in a given length of time by equal periodic payments that include compound inter-est. We are interested in computing the equal periodic payments.

Question 4

What is the amortization formula?

Answer 4

Solving the present value formula (5) for PMT in terms of the other variables, we obtain the following
amortization formula

Question 5

What is Equity?

Answer 5

Question 6

What are the three steps of strategy for solving mathamatics of finance problems?

Answer 6

Question 7

Path to choosing the correct formula

Answer 7

Question 8

What is the unpaid balance of a lone with n remaining paymens equil to?

Answer 8

The unpaid balance of a loan with n remaining payments is the present value of that annuity and can be computed by using formula