LOANS AND LOAN REPAYMENT  Cash price equals down payment plus present

LOANS value P of the balance.

 A loan is a debt provided by one entity (an
individual or an organization) to another entity
at an interest rate.
 Loans can be repaid through a one-time or
several regular payments.
Example 1
What is the maturity value of an PhP8, 000 debt
payable in 2 years at 123 % simple interest?
Solution: Recall that in simple interest, the maturity
value is obtained using the formula:
F = P (1 + rt),
where P is the principal, r is the rate of interest, and
t is the time in years.
 The balance is an annuity with present value P
given by:
where R is the
amount of the periodic payment, r is the rate of
interest, m is the number of payments per year, and
t is the time in years.
Example 3
A smartphone is purchased with a downpayment of
PhP1, 000 and the balance will be paid at PhP1,
075.83 per month for 1 year. What is its cash price
if the interest rate is 6% compounded monthly?

A

Example 2
James borrows PhP700, 000 and promises to pay
the principal and interest at 15% compounded
monthly. How much must he repay after 7 years?

Solution: This involves compound interest and the

maturity value is obtained using the formula:

where P is the
principal, r is the rate of interest, m is the number of mortization is a debt repayment scheme in
compoundings per year, and t is the time in years. which the original amount borrowed is repaid by
making equal payments periodically.
Solution (cont.): From the problem we have, P = The formula is:
700, 000, t = 7 years, r = 15% = 0.15, m = 12 since
we have a monthly compounding. Thus

where R is the regular payment, P is the present

value of the loan, r is the rate of interest, m is the
number of payments per year, and t is the time in
years
SEVERAL REGULAR PAYMENTS
 An annuity is a sequence of equal payments
made regularly (or periodically). The amount of
each payment is referred to as the regular or
periodic payment, denoted by R.
Example 4
Find the monthly amortization for a PhP150, 000
debt which is to be repaid in 2 years at 7% interest
compounded monthly.

Solution: Given P = 150, 000, t = 2, r = 0.07, m =

12. We need to find R. We have