AMORTIZATION

-way of paying debts in which

the original amount borrowed
is repaid by making equal
payments periodically.
https://www.youtube.com/watch?
v=88mQCgynwjk

-Kindly watch this for more

information
FORMULA

𝑟
𝑃( )
AP= 𝑛
𝑟 −𝑡𝑛
1−(1+ )
𝑛
 Formula Terminologies
• AP = Regular Payment PER PERIOD/
AMORTIZATION PAYMENT
• P = principal or amount of money
loaned
• r = annual interest rate (in decimal
form)
• n = number of times compounded
per year
• t = time period.
Examples:
A debt of P 400,000 is to be
amortized for 20 years. Interest
charged is 12 % compounded
quarterly. How much is the
amortization payment?

Note: First look for the years and no.

of times compounded per year in the
given. HIGHLIGHTED
If AMORTIZATION is a way of paying
debts into equal payments
periodically:
How many times would I need
to pay periodically?
Answer: depends on the years
(t)given and the number of
times it is compounded per
year(n).
 To get the NUMBER OF PERIODS
Step 1
In the given:
t= 20 years
n= 4 (quarterly)

nxt
4 x 20= 80 periods
-Payment of 80 periods quarterly for 20 years.
 Note: EVERY WHEN SHOULD I PAY?
This depend on the n.

Since in the given, the n is quarterly, it means:

You’ll pay every 3rd month of the year

(4 periods of payment in a year)
HOW MUCH SHOULD
I PAY EVERY PERIOD
or
HOW MUCH IS THE
AMORTIZATION
PAYMENT?
 SOLUTION
• Step 2: Given :
P= P 400,000
r = 0.12
t = 20 yrs.
n = 4 (quarterly)
AP=?
• Step 3: Formula: 𝑟
𝑃(𝑛)
AP= 𝑟
1−(1+ )−𝑡𝑛
𝑛
0.12
400,000()
AP= 0.12
4
1−(1+ 4 )−(20 𝑥 4)

= P 13,244.70

The REGULAR/AMORTIZATION PAYMENT QUARTERLY is P 13,244.70

 How to do it in Calculator?

• 400,000(0.12 ˩ 4) ÷ (1-(1+0.12 ˩ 4) ˄-(20 x 4))

• or
0.12 0.12
• 400,000( ) ÷ (1−(1+ )˄-(20 x 4))
4 4
 Example #2
Assume you borrow $100,000 at
6 percent for 30 years, to be repaid
monthly. How much is the
amortization payment?
 SOLUTION
• Step 1:
t= 30 years
n= 12 (monthly)

nxt
12 x 30 = 360 periods

• Payment of 360 times monthly for 30 years.

 SOLUTION
• Step 2: Given :
P= $ 100,000
r = 0.06
t = 30 yrs.
n = 12 (monthly)
AP=?
• Step 3: Formula: 𝑟
𝑃(𝑛)
AP= 𝑟
1−(1+ )−𝑡𝑛
𝑛
0.06
100,000( )
AP= 0.06
12
1−(1+ 12 )−(30 𝑥 12)

= $ 599.55

The REGULAR/AMORTIZATION PAYMENT MONTHLY is $ 599.55

 How to do it in Calculator?

• 100,000(0.06 ˩ 12) ÷ (1-(1+0.06 ˩ 12) ˄-(30 x 12))

or
0.06 0.06
• 100,000( ) ÷ (1−(1+ )˄-(30 x 12))
12 12
 TRY THIS Example!
Charice loaned P65,000 in a
bank and it is to be amortized for
7.5 % interest rate compounded
quarterly for 3 years. How much
is the amortization payment?
 ANSWER

• PAYMENT OF 12 PERIODS QUARTERLY FOR 3

YEARS
• The REGULAR/AMORTIZATION PAYMENT
QUARTERLY is P 6,099.29