BASIC LONG-TERM

FINANCIAL CONCEPTS
At the end of this lesson, you are expected
to compute LOAN AMORTIZATION using
mathematical concepts and the present
value.
 prepare loan amortization tables
 compute loan amortization using
mathematical concepts and the present
value tables
Loan Amortization
A LOAN is the sum of money borrowed that
is expected to be paid back with interest. An
AMORTIZATION is paying the debt with
regular payments. A housing loan is an
example of an amortizing loan that requires
the borrower to pay. Payments of loans can
be annually, semi-annually, quarterly, or
monthly.
A BOND is a form of loan that can be
traded in through the Philippine
Dealing and Exchange (PDEX)
System.
 When debts are paid using the
amortization method, it is important
to know how much interest is paid
and how much money is reduced in
the principal borrowed.
WHAT IS AN ANNUITY?
An ANNUITY is a series of payments
required for a specific number of
periods. An annuity due is when
payments are due at the beginning of
each payment period. When the
payment appears at the end of each
period it is called an ordinary annuity.
EXAMPLE:
Find the present value of an annuity
if the bank requires Anna to pay
Php 10,000.00 at 10% compounded
semi-annually for five years.
Remember those interest payments
can be paid annually, semi-annually,
quarterly, or monthly, so you have to
adjust the interest rates and time
accordingly.
ACTIVITY:
Directions: Find the present value of
an annuity using the PVIFA tables.
Write your answers on a separate
sheet of paper
EQUAL PRINCIPAL
REPAYMENTS
EXAMPLE 1:
On January 31, 2020, Matapat Company
made a loan of Php 2,400,000.00 from
Bank C at the rate of 8% a year. The loan
is paid Php 400,000.00 every December
31 and June 30 until the full amount is
paid.
 The following are the steps in
constructing the amortization
table for equal principal
repayments.
8%
The AMORTIZATION SCHEDULE
shows that as the principal
balances decrease, the total
payment and interest payments
also decrease.
 EQUAL REGULAR PAYMENTS
Some financial institutions
require individuals or businesses to
pay equal to regular payments. It
means that the principal and
interest are combined.
EXAMPLE 2:
Let us assume that Matapat Company
made a loan of Php 2,400,000.00 to be paid
in equal payments for 3 years. The interest
rate is 8% a year compounded semi-
annually. The table shows the company’s
amortization every six months.
The following are the steps in
constructing the amortization
table.
ACTIVITY:
Directions: Analyze and solve the
problem. Write your answers on a
separate sheet of paper.
1. Mr. Tayag applied for a housing loan
worth Php 1,000,000.00 and agreed to
pay Php 100,000.00 at the end of each
month with an interest rate of 24%
compounded monthly. Prepare an
amortization schedule.
2. A Php 2,000,000.00 loan is to
be amortized with 6 equal annual
payments. If the interest rate is
9%, find the annual payment and
construct an amortization
schedule.
ASSESSMENT:
Eshmir’s Company borrowed Php 2,000,000.00
from a bank on December 31, 2019. It has an
annual interest rate of 16%. The principal is
payable at the end of every quarter amounting
to Php 250,000.00. Complete the amortization
table if the first quarterly payment will be on
March 31, 2020 and the loan will end on
December 31, 2021.
ADDITONAL ACTIVITIES:
A debt of Php 2,000,000.00 is to be
repaid with equal payments at the end of
each quarter over a 2 year-period. The
interest rate is 16% converted quarterly.
Construct an amortization schedule and
find the quarterly payments.
WRITTEN WORK:
A. Easy Go Lucky Store borrowed
Php 4,000,000 from a bank on January 1,
2022. It has an annual interest rate of 20%.
The principal is payable semi-annually
amounting to Php 500,000.00. Complete the
amortization table if the first payment will
be on June 30, 2022.
WRITTEN WORK:
B. A loan of Php 1,500,000 with equal
payments semi-annually will be paid in
2 year-period. Twelve percent (12%) is
the interest rate converted every 6
months. Construct an amortization
schedule.