Chap 5 Time Value of Money第5章.pptVIP

The Present Value of an Ordinary Annuity (cont.) PMT = annuity payment deposited or received at the end of each period. i = discount rate (or interest rate) on a per period basis. n = number of periods for which the annuity will last. The Present Value of an Ordinary Annuity (cont.) Note , it is important that “n” and “i” match. If periods are expressed in terms of number of monthly payments, the interest rate must be expressed in terms of the interest rate per month. Amortized Loans An amortized loan is a loan paid off in equal payments – consequently, the loan payments are an annuity. Examples: Home mortgage loans, Auto loans Amortized Loans (cont.) In an amortized loan, the present value can be thought of as the amount borrowed, n is the number of periods the loan lasts for, i is the interest rate per period, future value takes on zero because the loan will be paid of after n periods, and payment is the loan payment that is made. Amortized Loans (cont.) Example 6.5 Suppose you plan to get a $9,000 loan from a furniture dealer at 18% annual interest with annual payments that you will pay off in over five years. What will your annual payments be on this loan? The Loan Amortization Schedule Year Amount Owed on Principal at the Beginning of the Year (1) Annuity Payment (2) Interest Portion of the Annuity (3) = (1) × 18% Repayment of the Principal Portion of the Annuity (4) = (2) –(3) Outstanding Loan Balance at Year end, After the Annuity Payment (5) =(1) – (4) 1 $9,000 $2,878 $1,620.00 $1,258.00 $7,742.00 2 $7,742 $2,878 $1,393.56 $1,484.44 $6,257.56 3 $6257.56 $2,878 $1,126.36 $1,751.64 $4,505.92 4 $4,505.92 $2,878 $811.07 $2,066.93 $2,438.98 5 $2,438.98 $2,878 $439.02 $2,438.98 $0.00 Amortized Loans with Monthly Payments Many loans such as auto and home loans require monthly payments. This requires converting n to number of months and computing the monthly interest rate. Example 6.6 You have just found the perfect home. However, in order to buy it, you