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Debt
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Interest rate:
Annual Percentage RateAPR
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Payment: Two components
• Interest payment: Owed to lender for privilege of using his/her/its money . . . How lenders make a profit
• Payment against principal: Portion of payment used to pay off the amount owed (amortization)
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Interest payment
• If one payment per year:INT=balance x APRWhere APR has been converted to proportion
• If more than one payment per year:INT=balance x APR/nWhere n is the number of payments per year
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Principal
1. The original amount of the loan2. A synonym for balance: The amount still to
be paid off3. The portion of a payment applied to the
reduction of the balance
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PAYMENT = INTEREST + PRINCIPAL
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PRINCIPAL = PAYMENT - INTEREST
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Fixed and variable payment schedules
Fixed means the amount of time for amortization of the debt is set, then the payment amount is computed
e.g.: 5 year car loan, 30 year mortgage
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Variable payment schedule:
Amount of payment is set, then the amount of time for amortization is computed.
e.g.: Payment of $100 per month on credit card debt until debt is completely paid, not matter how long it takes
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Amortization table:Fixed payment schedule
Payment Period
Beginning Balance Payment Interest Principal
EndingBalance
(blank) (blank) (blank) (blank) (blank) Enter original amount of debt
1 =Ending balance, previous row
=PMT function * -1
=Beginning balance * APR/n
=Payment - Interest
=Beginning Balance - Principal
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Amortization table:Variable payment schedule
Payment Period
Beginning Balance Payment Interest Principal
EndingBalance
(blank) (blank) (blank) (blank) (blank) Enter original amount of debt
1 =Ending balance, previous row
=amount of payment(equals sign must be entered)
=Beginning balance * APR/n
=Payment - Interest
=Beginning Balance - Principal
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