Amortization Sinking Funds: Click To Edit Master Title Style
Amortization Sinking Funds: Click To Edit Master Title Style
Amortization Sinking Funds: Click To Edit Master Title Style
AMORTIZATION
AND SINKING FUNDS
By group 4
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AMORTIZATION
• Gradual extinction of a debt over a period
of time by means of a sequence of equal
payment as to principal and interest due
at the end of equal intervals of time.
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Amortization
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• A debt that is amortized by equal periodic or instalment payments at equal
intervals of time becomes the present value of a simple annuity.
Hence we use the formulas:
1 (1 i ) n
R
A
A R 1 (1 i ) n
i i
Where,
• A = present Value R = periodic or equal payments
• n = number of conversion periods i = interest rate per conversion period
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EXAMPLES:
1. A man obtains a loan of ₱60,000.00 to be amortized
by equal payments at the end of each six months for
3 years at 10% interest compounded semi-annually.
Find the periodic payment.
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Given: A = ₱60,000.00 r = 10% i = 5% ( 10% / 2)
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n = 6 (3 years x 2) t = 3
Solve:
A 60,000
R
1 (1 i ) n 1 0.7462154
i 0.05
60,000 60,000
1 (1 5%) 6
5.075692
5%
Answer: ₱ 11,821.05
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EXAMPLES:
2. Mr. Santos is required to pay 5 annual instalments
of ₱25,000.00 each for a loan at 10% compounded
annually. How much is his loan?
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Given: title style i = 10
= ₱25,000.00 n=5
Solve:
1 (1 i ) n 1 0.6209213
25,000
A R .10
i
25,000(3.790787)
1 (1 10%) 5
25,000
10%
Answer: ₱ 94,769.67
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“
Amortization Schedule
The table that shows the amount paid to
the interest and to the principal, and the
reduction of the outstanding principal
after each payment period.
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Using the preceding Example 1 in which the periodic payment of ₱ 11,821.05 is
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obtained editA Master title rstyle
= ₱60,000.00, = 10% n = 6 t = 3 years, construct an
amortization schedule. SOLUTION:
b) Determine the amount repaid to the principal at the end of the first period
(6 months) by subtracting the interest from the periodic payment.
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Using the preceding Example 1 in which the periodic payment of ₱ 11,821.05 is
Click tofrom
obtained editA Master title rstyle
= ₱60,000.00, = 10% n = 6 t = 3 years, construct an
amortization schedule. SOLUTION:
c) Compute the outstanding principal at the end of the first period by subtracting
the amount repaid from the outstanding principal.
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“
d) Repeat the procedures above to obtain the figures
for the second to the sixth period.
Note that:
SINKING FUND
• A systematic accumulation of money by
making equal periodic deposits that will result
to the desired sum of money at desired time is
known as investing in a sinking fund. In other
words, in a sinking fund, the periodic deposits
are invested until the desired maturity value or
date is reached. 14
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Formula:
(1 i ) 1 n
R
S
S R
(1 i ) 1
n
i i
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Examples:
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Examples:
Given: S = ₱200,000.00 r = 12% (m=4) t = 2years i = 3% n=8
200,000 Answer:
8.892336 ₱ 22,491.28 17
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Examples:
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Examples:
Given: R = ₱10,000.00 r = 12% (m=4) t = 2years i = 3% n=8
(1 i ) 1
n
(1 3%) 1 8
S R 10,000
i 3%
10,000(8.892336) Answer:₱ 88,923.36
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Sinking
Click to fund schedule
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Refer to example 1.
Given: S = ₱200,000.00 r = 12% (m=4) t = 2years
R = ₱22,491.28 i = 3%
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Given: S = ₱200,000.00 r = 12% (m=4) t = 2years
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R = ₱22,491.28 i = 3%
Number of Fund at the start Interest at 3% at Amount of Amount of fund at
Payment of the period the end of the year periodic deposit the end of the year
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QUIZ:to edit Master title style
1. A debt of ₱45,000.00 with an interest rate of 8%
compounded quarterly will be amortized for 1 year
and 6 months. How much is the quarterly
amortization?
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