Loan Flashcards
What is loan amortization?
It is repaying a loan with payments at regular intervals, such as monthly, annually, etc.
What are the 2 categories of loan amortization?
- Interest due
- Loan principal repayment
What is the loan principal repayment?
it is the difference between the loan payment and the interest due.
What is an amortization schedule?
It is a table showing the year of the payment, the payment itself, the interest due, the principal repaid and the outstanding balance.
What is Bt?
It is the time-t outstanding loan balance after the βtβthe payment is applied. Since nothing changes between the end of period t and the beginning of period t1, the loan balance remains the same.
What is Rt?
It is the time-t loan payment.
What is It?
It is the time-t interest due.
What is Pt?
It is the principal repaid.
What is the formula for the interest due?
What is the formula for the principal repaid?
What is the formula for the outstanding balance?
What is the retrospective method to find the outstanding loan balance?
It is to find the accumulated value of the original loan
amount L minus the accumulated value of all past payments.
What is the formula for the retrospective method?
What is the prospective method to find the outstanding loan balance?
It is to find the present value of future-level payments
of π
.
What is the formula for the prospective method?
Draw a graph showing both method to find the outstanding balance.
What is the time-t interest due for a level payment?
It is the loan payment multiply
What is the time-t principal repaid for a level payment?
It is the loan payment multiply
What is the relationship between principal paid at time βtβ and βt+kβ?
