Business and

Consumer Loan
The need for loan
It provides funds to
finance certain
purchases, investment
or expansion.
- A loan
intended for
personal,
individual or
families.
- A loan
intended for
business
purposes that
involves debt
which will be
repaid with
interest.
 Notation
R = amount of each payment
r = rate of annuity
m = period per year
n = number of payment in an annuity
(𝑛 = 𝑚 • 𝑡 )
𝑟
i = interest per conversion period (i = )
𝑚
PV = present value of ordinary simple annuity
Amortization
- Is defined as combined
payment of principal and
the interest in sequence
of equal installment
payment over a period of
time.
 Formula
Present Value of an Amortization

𝟏 − (𝟏 + 𝒊)−𝒏
𝑷𝑽 = 𝑹
𝒊

Periodic Payment of an Amortization

𝑷𝑽
𝑹=
𝟏 − (𝟏 + 𝒊)−𝒏
𝒊
Example
1. Angelica acquired a business
loan of Php 120,000 to be
amortized by equal payments at
the end of each 3 months for 3
years at 10% interest
compounded quarterly. Solve
for the periodic payment.
 Given
𝑃𝑉 = 𝑃ℎ𝑝 120,000
𝑡 = 3 𝑦𝑒𝑎𝑟𝑠
𝑟 = 10%
𝑚=4
𝑛 =𝑚∙𝑡 𝑛 =4∙3
𝑛 = 12
𝑟 0.10
𝑖= 𝑖=
𝑚 4
𝑖 = 0.025
𝑹 = 𝑷𝒉𝒑 𝟏𝟏, 𝟔𝟗𝟖. 𝟒𝟓𝟓𝟐𝟒
Example
2. A consumer loan of Php
75,000 is to be paid every
3 months for 2 years with
interest rate of 15%. How
much is the quarterly
amortization?
Given
𝑃𝑉 = 𝑃ℎ𝑝 75,000
𝑡 = 2 𝑦𝑒𝑎𝑟𝑠
𝑟 = 15%
𝑚 = 12
𝑛 =𝑚∙𝑡 𝑛 = 12 ∙ 2
𝑛 = 24
𝑟 0.15
𝑖= 𝑖=
𝑚 12
𝑖 = 0.0125
𝑹 = 𝑷𝒉𝒑 𝟑, 𝟔𝟑𝟗. 𝟓𝟎
Example
3. Mr. Nanit is required to
pay Php 35,000 a year for
5 years. The interest rate is
5% compounded
annually. How much is his
loan?
Given
𝑅 = 𝑃ℎ𝑝 55,000
𝑡 = 5 𝑦𝑒𝑎𝑟𝑠
𝑟 = 5%
𝑚=1
𝑛 =𝑚∙𝑡 𝑛 =1∙5
𝑛=5
𝑟 0.05
𝑖= 𝑖=
𝑚 1
𝑖 = 0.05
𝑹 = 𝑷𝒉𝒑 𝟏𝟓𝟏, 𝟓𝟑𝟏. 𝟔𝟖
Amortization Schedule
- Is presented in table format stating
the amount paid to interest and the
diminishing principal.
- It provides information on how
much amount should be paid every
period. How much is applied to the
principal and the outstanding
balance.
 Steps in constructing the
amortization schedule
1. A Php 20,000 loan will be
amortized using equal
payments every 6 months for
2 years. The interest is 4%
compounded semi-annually.
Example
1. Francis acquired a business
loan of Php 120,000 to be
amortized by equal payments
at the end of each 3 months for
3 years at 10% interest
compounded quarterly.
Construct the amortization table.