Time Value of Money - Amortized Loans

4 important questions on Time Value of Money - Amortized Loans

What amortized loans?

A loan that is repaid in equal payments over its life.

A loan that is to be repaid in equal amounts on a monthly, quarterly, or annual basis.

What are examples of amortized loans?

Cars loans, home mortgage loans, student loans, and many business loans.

What is amortization schedule?

A table showing precisely how a loan will be repaid.

It gives the required payment on each payment date and a breakdown of the payment, showing how much is interest and how much is repayment of principal.
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What are the steps to setting up a amortization schedule? (4)

1. Find the required annual payment
2. Find the interest paid in year 1
3. Find the principal repaid in year 1
PRIN = PMT - INT
4. Find the ending balance after year 1
END BAL = BEG BAL - PRIN

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