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posted by  XeRoX2k2 on 11/18/2009 4:45:04 PM  |  status: Closed  |  Earned Karma: 24

amortization of 10yr loan with changing payments

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Finance mathematics of investment & credit,4th edition,samual broverman,isbn 9781566986571 3 1.1 11/20/2009 at 9:30:00 AM
Question Details:
An amortized loan has 10 annual payments at the end of each year starting one year from now. The first 5 payments are $1000 each and the final 5 payments are $500 each. Interest is at an effective annual rate of 10%.find the initial loan amount


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posted by Swimmer777 on 11/20/2009 1:50:42 AM  |  status: Live
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Response Details:
First, find the PV of the first 5 payments.  To do this, simply use the formula for an annuity:


Next, find the value of the final 5 payments at year 5 by using the annuity formula.  After you find the value at year 5, you will need to move the cash flows to year 0:



Finally, add these two values together to get the total value at time 0.  Good luck, and let me know if you have any more questions!
Statistics major at UC Santa Barbara
Tags: Math finance
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