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Amortized
Loans
Add-on Loans
Amortized Loans
Is the case when the loan is to be repaid in equal periodic
amounts (weekly, monthly, quarterly or annually)
example for that automobile loans, appliances loans and
home mortgage loans
The periodic loan payment consist of two parts
Principal payment PPn and Interest payment In
A = PPn + In
1
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In = (Bn -1) i
I1 = 5000 (12%/12) = 50.0
PP1 = A In
= 235.37 50
PP1 = 185.37
B1 = 5000 185.37 = 4814.63
I2 =4814.63 *0.1 = 48.15
PP2 = 235.37-48.15
PP2 = 187.22
B2 = 4814.63 187.22= 4627.41
5
In this type of loan , the total interest to be paid is precalculated and added to the principal
Then the new amount (principal plus the pre-calculated
interest) paid in equal installments
Total add on interest = P(i) (N)
Principal plus add on interest =P+P(i)(N)=P(1+iN)
Monthly installments =P(1+iN)/(12*N)
The add on interest is simple interest
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