Amortization

Amortization
• Amortization – a debt-repayment scheme
wherein the original amount borrowed is
repaid by making equal payments periodically
• In amortization problems, we usually want to
find the following values:
– Periodic payment
– Outstanding principal at the end of any period
– Interest payment for any period
– Principal repayment for any period
– Final irregular payment, if there is any

Amortization
• Outstanding principal/balance (OB) – refers
to the amount of debt still unpaid
• Amortization schedule – a table which shows
how a debt is completely repaid through
periodic payments, parts of which go to
interest payments and principal repayments

Amortization
Amortization
 Formulas:
• Periodic payment Recall
Ai
R
1  (1 i) n

• Outstanding balance/principal
1  (1  i) ( nk )  If a loan is to be repaid by
 OBk  R   n payments of R, the
 i  outstanding balance just
after the kth payment
 (1  i ) k
 1 denoted by OBk, is the
OBk  A(1  i)  R 
k
 present value of the (n-k)
 i  payments still to be made.

Amortization
A loan is to be amortized via equal payments of
Php119,764.71 each at the end of six months
for 9 years. If the interest is based on 10%
compounded semi-annually, find
a) the original amount of the loan
b) outstanding principal after the 8th payment
c) outstanding principal after the 8th year.

Amortization
17. A loan is to be amortized via equal payments
of Php119,764.71 each at the end of six
months for 9 years. If the interest is based on
10% compounded semi-annually, find
a) the original amount of the loan
1  (1  i)  n  1  1.0518 
A  R   119,764.71 
 i   .05 
 Php1.4M

 Amortization
17. A loan is to be amortized via equal payments
of Php119,764.71 each at the end of six
months for 9 years. If the interest is based on
10% compounded semi-annually, find
b) outstanding balance after the 8th payment
1  1.05 (188) 
OB8  119,764.71 
 .05 
 Php924,791.34

 Amortization
17. A loan is to be amortized via equal payments
of Php119,764.71 each at the end of six
months for 9 years. If the interest is based on
10% compounded semi-annually, find
c) outstanding principal after the 8th year.
1  1.05(1816) 
OB16  119,764.71 
 .05 
 Php222,691.75

 Amortization
Goriotik obtains a Php13M bank loan at 12%
interest compounded semi-annually to
construct another studio. The company repays
the loan by paying Php0.5M every 6 months.
What is the outstanding principal after the
10th payment?
1.0610
 1
OB10  13,000,000(1.06 )  500,000
10

 .06 
 Php16,690,622.58

Amortization
Formulas: all on the kth payment date
• Interest payment (I)
I k  OBk 1  i
• Principal repayment
PRk  R  I k
• Total interest (if all payments are regular)
IPT  nR  A

 Amortization
A Php1.75M loan is to be repaid through annual
payments of Php360,000. Construct an
amortization schedule up to the end of the
third period if effective interest rate is 9%.
Period Regular Interest Principal Outstanding
payment payment repayment balance

Amortization
A Php1.75M loan is to be repaid through annual
payments of Php360,000. Construct an
amortization schedule up to the end of the
third period if effective interest rate is 9%.

Period Regular Interest Principal Outstanding

Amortization
A Php1.75M loan is to be repaid through annual
payments of Php360,000. Construct an
amortization schedule up to the end of the
third period if effective interest rate is 9%.
Period Regular Interest Principal Outstanding
payment payment repayment balance
0 1,750,000
1 360,000 157,500 202,500 1,547,500
2
3

Amortization
A Php1.75M loan is to be repaid through annual
payments of Php360,000. Construct an
amortization schedule up to the end of the
third period if effective interest rate is 9%.

Period Regular Interest Principal Outstanding

Amortization
A Php1.75M loan is to be repaid through annual
payments of Php360,000. Construct an
amortization schedule up to the end of the
third period if effective interest rate is 9%.
Period Regular Interest Principal Outstanding
payment payment repayment balance
0 1,750,000
1 360,000 157,500 202,500 1,547,500
2 360,000 139,275 220,725 1,326,775
3 360,000 119,409.75 240,590.25 1,086,184.75

Amortization
A loan of Php400,000 with interest at 8%
payable semi-annually is to be amortized
through equal semi-annual payments for 5
years.
a) Find the amount of each semi-annual
payment.
b) How much of the 6th payment goes to interest
payment? How much is allocated for
repayment of principal?
c) How much is the total interest paid?
Amortization
 A loan of Php400,000 with interest at 8%
payable semi-annually is to be amortized
through equal semi-annual payments for 5
years.
a) Find the amount of each semi-annual
payment.
(400,000)(.04)
R
1 1.04 10
 Php49,316.38

 Amortization
A loan of Php400,000 with interest at 8%
payable semi-annually is to be amortized
through equal semi-annual payments for 5
years.
b) How much of the 6th payment goes to interest
payment? How much is allocated for
repayment of principal?
IP6  OB5i
1  1.04(105)   Php8,781.91
OB5  49,316.38 
 .04  PR6  R  IP6
 Php219,547.76   Php40,534.47

Amortization

 A loan of Php400,000 with interest at 8%
payable semi-annually is to be amortized
through equal semi-annual payments for 5
years.
c) How much is the total interest paid?

IPT  nR  A
 (10)(49,316.38)  400,000
 Php93,163.80


Amortization
How much will be the quarterly amortization for
a Php1.34M loan with interest at 10%
converted quarterly for a term of 6 years?
How much interest will be paid on the 4th
payment? What is the outstanding principal in
5 years?

Amortization
How much will be the quarterly amortization for
a Php1.34M loan with interest at 10%
converted quarterly for a term of 6 years?
How much interest will be paid on the 4th
payment? What is the outstanding principal in
5 years?

(1,340,000)(.025)
R
1 1.025 24
 Php74,923.18

Amortization
 How much will be the quarterly amortization for
a Php1.34M loan with interest at 10%
converted quarterly for a term of 6 years?
How much interest will be paid on the 4th
payment? What is the outstanding principal in
5 years?
1  1.025( 243)  IP4  OB3i
OB3  74,923.18 
 .025   Php30,314.95
 Php1,212,597.85


 Amortization
How much will be the quarterly amortization for
a Php1.34M loan with interest at 10%
converted quarterly for a term of 6 years?
How much interest will be paid on the 4th
payment? What is the outstanding principal in
5 years?
1  1.025( 2420) 
OB20  74,923.18 
 .025 
 Php281,859.07

Amortization
To restructure a loan payment supposedly due
now, a debtor agrees to Php111,500 payment
at the end of each 6 months for 4 years
including interest payments at 7%, m = 2.
a) Determine the outstanding principal after the
4th payment.
b) What part of the 7th payment is interest
payment?
c) What part of the 7th payment is allotted for
principal repayment?

Amortization
To restructure a loan payment supposedly due
now, a debtor agrees to Php111,500 payment
at the end of each 6 months for 4 years
including interest payments at 7%, m = 2.
a) Determine the outstanding principal after the
4th payment.

1  1.035(84) 
OB4  111,500   Php409,548.33
 .035 

 Amortization
To restructure a loan payment supposedly due
now, a debtor agrees to Php111,500 payment
at the end of each 6 months for 4 years
including interest payments at 7%, m = 2.
b) What part of the 7th payment is interest
payment?

1  1.035 (86) 
IP7  111,500 (.035)
 .035 
 Php7,413.56

Amortization
 To restructure a loan payment supposedly due
now, a debtor agrees to Php111,500 payment
at the end of each 6 months for 4 years
including interest payments at 7%, m = 2.
c) What part of the 7th payment is allotted for
principal repayment?

PR7 111,500  7,413.56  Php104,086.44

  Amortization