Amortization

Learning Objective

Solve problems involving

consumer loan
(amortization)
Amortization Schedule

A complete table of periodic loan

payments, showing the amount of
principal and the amount of
interest that comprise each
payment until the loan is paid off
at the end of its term
Amortization Schedule

table, containing the following columns:

payments
interest part of a payment
principal part of a payment
outstanding principal
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
 How to construct
1. Calculate the periodic payment. Column B
with this periodic payment.
2. To fill up Column C, calculate interest using
the formula i=Prt.
3. To fill up Column D, subtract Column C from
Column B.
4. To fill up column E, subtract Column D from
Column E as follows:
 How to construct
1. Calculate the periodic payment. Column B
with this periodic payment.
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
 How to construct
2. To fill up Column C, calculate interest using
the formula i=Prt.
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
 How to construct
3. To fill up Column D, subtract Column C from
Column B.
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
 How to construct
4. Calculate the periodic payment. Column B To
fill up column E, subtract Column D from
Column E as follows:
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
Example:
5000 at 12 % per year repaid by 5 annual payments

A B C D E
Example 2
Eva obtained a loan of P 50 000 for the tuition
fee of her son. She has to repay the loan by
equal payments at the end of every six months
for 3 years at 10% interest compounded semi-
annually.
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
 How to construct
1. Calculate the periodic payment. Column B
with this periodic payment.
2. To fill up Column C, calculate interest using
the formula i=Prt.
3. To fill up Column D, subtract Column C from
Column B.
4. To fill up column E, subtract Column D from
Column E as follows:
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
 How to construct
1. Calculate the periodic payment. Column B
with this periodic payment.
2. To fill up Column C, calculate interest using
the formula i=Prt.
3. To fill up Column D, subtract Column C from
Column B.
4. To fill up column E, subtract Column D from
Column E as follows:
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
 How to construct
1. Calculate the periodic payment. Column B
with this periodic payment.
2. To fill up Column C, calculate interest using
the formula i=Prt.
3. To fill up Column D, subtract Column C from
Column B.
4. To fill up column E, subtract Column D from
Column E as follows:
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
 How to construct
1. Calculate the periodic payment. Column B
with this periodic payment.
2. To fill up Column C, calculate interest using
the formula i=Prt.
3. To fill up Column D, subtract Column C from
Column B.
4. To fill up column E, subtract Column D from
Column E as follows:
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
Period Periodic Interest Amount repaid Outstanding
Payment Principal
0 50, 000.00
1 9, 850.87 2, 500.00 7, 350.87 42, 649.13
2 9, 850.87 2, 132.46 7, 718.41 34, 930.72
3 9, 850.87 1, 746.54 8, 104.33 26, 826.39
4 9, 850.87 1, 341.31 8, 509.56 18, 316.84
5 9, 850.87 915.84 8, 935.03 9, 381.81
6 9, 850.87 469.09 9, 381.81 0
Total 59, 105.22 9, 105.24 50, 000.00
Practice Exercise
Exponent Corporation is required to pay 8
annual instalments of P 2 500 000 each for a
loan to pay for expansion at 12% compounded
annually. How much is the loan? Construct the
amortization schedule.
P = 2 500 000 r = 12% t= 8 years
i = 0.12 K = 1 n = Kt = 8

2 500 000 [1 (1 + 0.12)^-8

PV = ______________________________

0.12

PV = 12 419 099.42
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41
Period Periodic Payment Interest Amount repaid Outstanding
Principal
0 12 419 099.41
1 P 2 500 000 1 490 291.93 1 009 708.07 11 409 391.34
2 P 2 500 000 1 369 126.96 1 130 873.04 10 278 518.30
3 P 2 500 000 1 233 422.20 1 266 577.80 9 011 940.50
4 P 2 500 000 1 081 432.86 1 418 567.14 7 593 373.36
5 P 2 500 000 911 204.80 1 588 795.20 6 004 578.16
6 P 2 500 000 720 549.38 1 779 450.62 4 225 127.54
7 P 2 500 000 507 015.30 1 992 984.70 2 232 142.84
8 P 2 500 000 267 857.14 2 232 142.84 0
Total P 20 000 000 7 580 900.57 12 419 099.41