Amortization Schedule and

Uniform Arithmetic Gradient

Amortization
• Amortization is any method of repaying a debt, the principal and
interest included, usually by a series of equal payments at equal
interval of time
Example 1:
• A debt of P5,000 with interest at 12% compounded semiannually is to
be amortized by equal semiannual payments over the next 3 years,
the first due in 6 months. Find the semiannual payment and construct
an amortization schedule.
𝑃 = 𝐴[1 − 1 + 𝑖 −𝑛∗𝑚 ]
Example 1:
• A debt of P5,000 with interest at 12% compounded semiannually is to
be amortized by equal semiannual payments over the next 3 years,
the first due in 6 months. Find the semiannual payment and construct
an amortization schedule.
𝑃 = 𝐴[1 − 1 + 𝑖 −𝑛∗𝑚 ]

𝐴 = 𝑃1,016.82
Example 1:
• A debt of P5,000 with interest at
12% compounded semiannually is
to be amortized by equal
semiannual payments over the next
3 years, the first due in 6 months.
Find the semiannual payment and
construct an amortization schedule.
𝑃 = 𝐴[1 − 1 + 𝑖 −𝑛∗𝑚 ]

𝐴 = 𝑃1,016.82
Example 2:
• A debt of P10,000 with interest at
the rate of 20% compounded
semiannually is to be amortized by 5
equal payments at the end of each 6
months, the first payment is to be
made after 3 years. Find the
semiannual payment and construct
an amortization schedule.
𝑃 = 𝐴 1 − 1 + 𝑖 −𝑛∗𝑚 ∗ 1 + 𝑖 −𝑥

𝐴 = 𝑃4,248.50
Example 2:
• A debt of P10,000 with interest at the rate of 20% compounded
semiannually is to be amortized by 5 equal payments at the end of
each 6 months, the first payment is to be made after 3 years. Find the
semiannual payment and construct an amortization schedule.
𝑃 = 𝐴 1 − 1 + 𝑖 −𝑛∗𝑚 ∗ 1 + 𝑖 −𝑥

𝐴 = 𝑃4,248.50
Example 2:
• A debt of P5,000 with interest at
12% compounded semiannually is
to be amortized by equal
semiannual payments over the next
3 years, the first due in 6 months.
Find the semiannual payment and
construct an amortization schedule.
𝑃 = 𝐴[1 − 1 + 𝑖 −𝑛∗𝑚

𝐴 = 𝑃1,016.82
Uniform Arithmetic Gradient
• In certain cases, economic analysis problems involve receipts or
disbursements that increase or decrease by a uniform amount each
period. For example, maintenance and repair expenses on specific
equipment or property may increase by a relatively constant amount
each period. This is known as UNIFORM ARITHMETIC GRADIENT.
Uniform Arithmetic Gradient
• Suppose that the maintenance expense on a certain machine is P1000
at the end of the first year and increasing at a constant rate of P500
each year for the next four years.
Uniform Arithmetic Gradient
• Suppose that the maintenance expense on a certain machine is P1000
at the end of the first year and increasing at a constant rate of P500
each year for the next four years.
Uniform Arithmetic Gradient

𝑃 = 𝑃𝐴 + 𝑃𝐺

𝑃𝐴 = 𝐴[1 − 1 + 𝑖 −𝑛∗𝑚 ] 𝐺 1+𝑖 𝑛−1 1

𝑃𝐺 = −𝑛 𝑛
𝑖 𝑖 1+𝑖
 𝐺 1 + 𝑖 𝑛−1 1
Uniform Arithmetic Gradient 𝑃𝐺 = −𝑛 𝑛
𝑖 𝑖 1+𝑖
• A loan was to be amortized by a group of four end-of-year payments
forming an ascending arithmetic progression. The initial payment was
to be P5,000 and the difference between successive payments was to
be P400. But the loan was renegotiated to provide for the payment of
equal rather than uniformly varying sums. If the interest rate of the
loan was 15%, what was the annual payment?
 𝐺 1 + 𝑖 𝑛−1 1
Uniform Arithmetic Gradient 𝑃𝐺 = −𝑛 𝑛
𝑖 𝑖 1+𝑖
• Find the equivalent annual payment of the following obligations at
20% interest. END OF YEAR PAYMENT
1 P8,000
2 7,000
3 6,000