LOAN AMORTIZATION

Business Finance
Loan Amortization
• paying back a loan with regular payments
(annually, semi-annually, quarterly or monthly)
• when paying loans, it is important to know how
much of the cash paid reduced the principal
amount and how much applies to interest
(loan amortization schedule)
Annuity
• a series of regular payments required for a
specific number of periods
• the number of periods depends on the terms
(monthly, quarterly, semi-annually, annually)
• counting periods:
• monthly payments = 12 periods in a year
• quarterly payments = 4 periods in a year
• semi-annual payments = 2 periods in a year
• annually = 1 period in a year
Annuity
• types of annuity:
• annuity due – payments are due at the
beginning of each period
payment due payment due payment due

0 1 2 3

• ordinary annuity – payments are due at the

end of each period
payment due payment due payment due

0 1 2 3
Annuity
• the types of annuity is relevant in the
computation of interest
• present value can be computed using the
PVIF for ordinary annuity table
Example
Find the present value of an annuity if the bank
requires the business to pay Php 10,000 at 10%
compounded semi-annually for five years.
No. of periods ______________________
Rate ______________________
PVIF ______________________
Present value ______________________
Example
Find the present value of an annuity if the bank
requires the business to pay Php 10,000 at 10%
compounded semi-annually for five years.
No. of periods 2 periods/year x 5 years = 10 periods
Rate ______________________
PVIF ______________________
Present value ______________________
Example
Find the present value of an annuity if the bank
requires the business to pay Php 10,000 at 10%
compounded semi-annually for five years.
No. of periods 2 periods/year x 5 years = 10 periods
Rate 10% per year = 5% per period
PVIF ______________________
Present value ______________________
Example
Find the present value of an annuity if the bank
requires the business to pay Php 10,000 at 10%
compounded semi-annually for five years.
No. of periods 2 periods/year x 5 years = 10 periods
Rate 10% per year = 5% per period
PVIF 7.721735 (from table)
Present value ______________________
Example
Find the present value of an annuity if the bank
requires the business to pay Php 10,000 at 10%
compounded semi-annually for five years.
No. of periods 2 periods/year x 5 years = 10 periods
Rate 10% per year = 5% per period
PVIF 7.721735 (from table)
Present value Php10,000 x 7.721735 = Php 77,217.35
Example
Find the present value of an annuity if the bank requires the business to pay
Php 10,000 at 10% compounded semi-annually for five years.
10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000

0 1 2 3 4 5
Php 9,523.81 10,000 x 0.952381

Php 9,070.29 10,000 x 0.907029

Php 8,638.38 10,000 x 0.863838
Php 8,227.02 10,000 x 0.822702
Php 7,835.26 10,000 x 0.783526
Php 7,462.15 10,000 x 0.746215
Php 7,106.81 10,000 x 0.710681
Php 6,768.39 10,000 x 0.676839
Php 6,446.09 10,000 x 0.644609
Php 6,139.13 10,000 x 0.613913
 Example
Find the present value of an annuity if the bank requires the business to pay
Php 10,000 at 10% compounded semi-annually for five years.
10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000

0 1 2 3 4 5
Php 9,523.81 10,000 x 0.952381

Php 9,070.29 10,000 x 0.907029

Php 8,638.38 10,000 x 0.863838
Php 8,227.02 10,000 x 0.822702
Php 7,835.26 10,000 x 0.783526
Php 7,462.15 10,000 x 0.746215
Php 7,106.81 10,000 x 0.710681
Total PVIF = 7.721712
Php 6,768.39 10,000 x 0.676839
Php 6,446.09 10,000 x 0.644609
Php 6,139.13 10,000 x 0.613913
Php 77,217.12
Practice
Find the present value of an ordinary annuity:
1. What is the present value of an annuity of Php 15,000.00 at
the end of 10 years converted annually at 10%?
2. What is the present value of an ordinary annuity of Php
5,000.00 paid quarterly for 3 years at 8%?
3. What is the present value of an ordinary annuity of Php
2,000.00 paid monthly for 2 years at 12%?

LEARN: FINDING THE PVF USING ONLY STANDARD CALCULATOR

Practice
Find the present value of an ordinary annuity:

1. What is the present value of an annuity of Php 15,000.00

at the end of 10 years converted annually at 10%?
ANSWER: Php 92,168.51 (Php 15,000 x 6.144567)
2. What is the present value of an ordinary annuity of Php 5,000.00 paid quarterly for 3 years at 8%?
ANSWER: Php 52,876.71 (Php 5,000 x 10.575341)

3. What is the present value of an ordinary annuity of Php 2,000.00 paid monthly for 2 years at 12%?
ANSWER: Php 42,486.77 (Php 2,000 x 21.243387)
Practice
Find the present value of an ordinary annuity:
1. What is the present value of an annuity of Php 15,000.00 at the end of 10 years converted annually at 10%?
ANSWER: Php 92,168.51 (Php 15,000 x 6.144567)

2. What is the present value of an ordinary annuity of

Php 5,000.00 paid quarterly for 3 years at 8%?
ANSWER: Php 52,876.71 (Php 5,000 x 10.575341)

3. What is the present value of an ordinary annuity of

Php 2,000.00 paid monthly for 2 years at 12%?
ANSWER: Php 42,486.77 (Php 2,000 x 21.243387)
Practice
Find the present value of an ordinary annuity:
1. What is the present value of an annuity of Php 15,000.00 at the end of 10 years converted annually at 10%? ANSWER: Php 92,168.51 (Php 15,000 x 6.144567)
2. What is the present value of an ordinary annuity of Php 5,000.00 paid quarterly for 3 years at 8%? ANSWER: Php 52,876.71 (Php 5,000 x 10.575341)

3. What is the present value of an ordinary annuity of

Php 2,000.00 paid monthly for 2 years at 12%?
ANSWER: Php 42,486.77 (Php 2,000 x 21.243387)
Loan Amortization Schedule
(Equal Principal Payments)
On January 1, 2020, Matapat Company made a loan of
Php2,400,000 from First National Bank at the rate of 8% a year.
The loan is paid Php 400,000 every December 31 and June 30
until the full amount is paid.

How many times will Matapat pay to fully settle its loan?
How many years will it take for Matapat Company to fully
settle its loan?
How much is the interest payment will be made for each
period?
Loan Amortization Schedule
(Equal Principal Payments)
On January 1, 2020, Matapat Company made a loan of Php2,400,000 from First National
Bank at the rate of 8% a year. The loan is paid Php 400,000 every December 31 and June
30 until the full amount is paid.
Date Total Payment Interest Payment Principal Payment Outstanding
(Principal + Interest) (OB x 8% x 6/12) Balance
01/01/20 Php 2,400,000
06/30/20 Php. 400,000
12/31/20 400,000
06/30/21 400,000
12/31/21 400,000
06/30/22 400,000
12/31/22 400,000
Php 2,400,000
Loan Amortization Schedule
(Equal Principal Payments)
On January 1, 2020, Matapat Company made a loan of Php2,400,000 from First National
Bank at the rate of 8% a year. The loan is paid Php 400,000 every December 31 and June
30 until the full amount is paid.
Date Total Payment Interest Payment Principal Payment Outstanding
(Principal + Interest) (OB x 8% x 6/12) Balance
01/01/20 Php 2,400,000
06/30/20 Php 496,000 Php 96,000 Php 400,000 2,000,000
12/31/20 480,000 80,000 400,000 1,600,000
06/30/21 464,000 64,000 400,000 1,200,000
12/31/21 448,000 48,000 400,000 800,000
06/30/22 432,000 32,000 400,000 400,000
12/31/22 416,000 16,000 400,000 0
Php 2,736,000 Php 336,000 Php 2,400,000
Loan Amortization Schedule
(Equal Total Payments)
Let us assume that on January 1, 2020 Matapat Company
made a loan of Php2,400,000 to be paid in equal payments for
3 years. The interest rate is 8% a year compounded semi-
annually, every June 30 and December 31.

How many times will Matapat pay to fully settle its loan?
How much is the interest payment will be made for each
period?
How much is the principal payment will be made for each
period?
Loan Amortization Schedule
(Equal Total Payments)
Let us assume that on January 1, 2020 Matapat Company
made a loan of Php2,400,000 to be paid in equal payments for
3 years. The interest rate is 8% a year compounded semi-
annually, every June 30 and December 31.

PV of Loan (Principal Amount) = Annual Payments x PVF

Annual Payments = Principal Amount / PVF
Loan Amortization Schedule
(Equal Total Payments)
Let us assume that on January 1, 2020 Matapat Company
made a loan of Php2,400,000 to be paid in equal payments for
3 years. The interest rate is 8% a year compounded semi-
annually, every June 30 and December 31.

PV of Loan (Principal Amount) = Annual Payments x PVF

Annual Payments = Principal Amount / PVF

No. of periods = 6 periods (3 years, semi-annual)

Rate = 4% (8% x 6/12 months)
Loan Amortization Schedule
(Equal Total Payments)
Let us assume that on January 1, 2020 Matapat Company
made a loan of Php2,400,000 to be paid in equal payments for
3 years. The interest rate is 8% a year compounded semi-
annually, every June 30 and December 31.

Annual Payments = Principal Amount / PVF

= Php 2,400,000 / 5.242137
= Php 457,828.55
No. of periods = 6 periods (3 years, semi-annual)
Rate = 4% (8% x 6/12 months)
Loan Amortization Schedule
(Equal Total Payments)
Let us assume that on January 1, 2020 Matapat Company made a loan of Php2,400,000
to be paid in equal payments for 3 years. The interest rate is 8% a year compounded
semi-annually, every June 30 and December 31.
Date Total Payment Interest Payment Principal Payment Outstanding
(OB x 4%) (OB – Interest) Balance
01/01/20 Php 2,400,000
06/30/20 Php 457,828.55
12/31/20 457,828.55
06/30/21 457,828.55
12/31/21 457,828.55
06/30/22 457,828.55
12/31/22 457,828.55
Php 457,828.55
Loan Amortization Schedule
(Equal Total Payments)
Let us assume that on January 1, 2020 Matapat Company made a loan of Php2,400,000
to be paid in equal payments for 3 years. The interest rate is 8% a year compounded
semi-annually, every June 30 and December 31.
Date Total Payment Interest Payment Principal Payment Outstanding
(OB x 4%) (OB – Interest) Balance
01/01/20 Php 2,400,000
06/30/20 Php 457,828.55 Php 96,000.00 Php361,828.55 2,038,171.45
12/31/20 457,828.55 81,526.86 376,301.69 1,661,869.76
06/30/21 457,828.55 66,474.79 391,353.76 1,270,516.00
12/31/21 457,828.55 50,820.64 407,007.91 863,508.09
06/30/22 457,828.55 34,540.32 423,288.23 440,219.86
12/31/22 457,828.55 17,608.79 440,219.76 0
Php 2,746,971.30 Php 346,971.41 Php 2,399,999.89
Practice
Equal Principal Payments:
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.
Period Total Payment Interest Payment Principal Payment Outstanding
(Principal + Interest) (OB x __%) (OB – Interest) Balance
0
1
2
3
Practice
Equal Total Payments:
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.

Period Total Payment Interest Payment Principal Payment Outstanding

(OB x __%) (OB – Interest) Balance
0
1
2
3
Practice
Equal Principal
Payments:
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.
Practice
Equal Total
Payments:
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.