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1|Business and Consumer Loans General Mathematics

BUSINESS AND CONSUMERR LOANS the end of the term indicates that the debt
is completely paid.
A 𝒍𝒐𝒂𝒏 is a debt provided by one entity (an Examples:
individual or an organization) to another entity at 1. Create an amortization for Example #1 on
an interest rate. Loans can be repaid through a amortization.
one-time payment or several payments. This 2. A ₱65,000 loan at 12% compounded
lesson involves the case wherein a loan is repaid semiannually is to be amortized every 6
by making equal payments regularly. months for 3 years. Find the semiannual
payment and construct a amortization
It is paying off a debt or loan in regular
installments over a specific period of time. OUTSTANDING PRINCIPAL
Amortization follows an amortization schedule - Also known as 𝒐𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒃𝒂𝒍𝒂𝒏𝒄𝒆
where the number of needed payments, - This refers to the remaining or current balance
payment for each period, payment on principal on a loan, at a particular date. It is the amount
and interest, and balance of loan are reflected. that the borrower needs to pay if he wants to
pay the debt in full even before the last
To compute for the periodic payment, we follow payment.
the formula for periodic payment of annuities. - It can be solved by subtracting the future
𝒊 value of a debt after a certain number of
𝑹 = 𝑨𝒏 [ ] periods and maturity value of the payments
𝟏 − (𝟏 + 𝒊)−𝒏
Where R = periodic payment made.
An = present value of the loan (𝟏 + 𝒊)𝒏 − 𝟏
𝑶𝑷 = 𝑷(𝟏 + 𝒊)𝒏 − 𝑹 [ ]
𝒊 = interest rate per period (𝒎) 𝒊
Where P = principal or the loan
n = number of payments made 𝒋
t = time in years 𝒊 = interest rate per period (𝒎)
Example: R = periodic payment
1. Find the monthly amortization (i.e., monthly n = number of payments made
payment) for a ₱450,000 debt which is to be
repaid in 2 years at 9% compounded monthly. another formula:
𝟏 − (𝟏 + 𝒊)−(𝒏−𝒑)
An amortization schedule is a table that shows the Where R = periodic payment
flow of money after each installment. It is 𝒋
𝒊 = interest rate per period (𝒎)
composed of columns containing the number of
payment or date of payment, payment per n = original number of periods
period, payment on principal, payment on p = number of payments made
interest, and balance of loan. On the table, the (𝒏 > 𝒑)
borrower can check the remaining balance after Examples:
each installment or whenever he wants to pay the 1. A catering business took out a bank loan and
debt in full. plans to repay it through 5 annual
To construct an amortization schedule, follow amortizations amounting to ₱192,819.34 each.
these steps: If the bank charged an interest of 9%
compounded semiannually, find the
1. Solve for the periodic payment (𝑹).
outstanding principal after the 3rd year?
2. Prepare the table with the indicated
2. A growing business has moved to a new
column headings and (𝒏 + 𝟏) rows.
building to service client pool. The building
3. A. Place the original debt on the 0th row
has been acquired through a ₱15 million bank
under “Balance of Loan.” Then place the loan with 12% interest compounded monthly. If
periodic payment (𝑹) on the 1st to last row the agency amortizes the loan with monthly
under “Total Payment.” ₱200,000 payments, what is the outstanding
B. Get the interest payment (𝑰𝑷) for the balance in 5 years?
first period by multiplying original debt
by the interest rate per period (𝒎) MORTGAGE
C. Subtract 𝑰𝑷 from the regular payment A 𝒎𝒐𝒓𝒕𝒈𝒂𝒈𝒆 is a loan in which a debtor’s real (or
to get the payment on principal personal property) functions as the collateral,
repayment for the first period. usually used to a home loan.
D. Deduct the payment on principal from
the debt to get the balance of the loan 𝑭𝒊𝒙𝒆𝒅 𝒓𝒂𝒕𝒆 𝒎𝒐𝒓𝒕𝒈𝒂𝒈𝒆 – a fixed amount is paid
at the end of first period. regularly for the entire term of the loan
4. Repeat Step 3 for the other rows until your 𝑨𝒅𝒋𝒖𝒔𝒕𝒂𝒃𝒍𝒆 𝒓𝒂𝒕𝒆 𝒎𝒐𝒓𝒕𝒈𝒂𝒈𝒆𝒔 – interest rate (as
reach the final period. A balance of 0 at well as the payment) can change at some point