IEN255 Chapter 3 Leftovers Commercial Loan Transactions

1 / 11
About This Presentation
Title:

IEN255 Chapter 3 Leftovers Commercial Loan Transactions

Description:

So, each payment can be defined as: A = Pn In. Engineering Economy. Tabular Method ... Discount Bond - A bond that sells below par (face) value ... – PowerPoint PPT presentation

Number of Views:39
Avg rating:3.0/5.0
Slides: 12
Provided by: LarryW152

less

Transcript and Presenter's Notes

Title: IEN255 Chapter 3 Leftovers Commercial Loan Transactions


1
IEN255 Chapter 3 Leftovers Commercial Loan
Transactions
  • Amortized Loans
  • Bn Remaining Balance at the end of period n,
    with B0 P
  • In Interest payment in period n, where In
    Bn-1i
  • Pn Principle payment in period n.
  • So, each payment can be defined as
  • A Pn In

2
Tabular Method
  • Tabular method (spreadsheet)
  • Interest at end of first period I1 B0i Pi
  • Principle Payment at end of first period P1 A
    - Pi
  • Balance remaining after first payment B1 B0 -
    P1 P - P1
  • At the end of the second period
  • I2 B1i (P - P1)i
  • P2 A - (P - P1)i (A - P1i) P1i P1 (1 i)
  • B2 B1 - P2 P - (P1 P2)
  • and so on to page 146.

3
Figure 3.18
4
Remaining Balance Method
  • (3.15) Bn A (P/A, i, N - n) (balance)
  • (3.16) Bn-1i A(P/A, i, N - n 1) i (interest
    payment)
  • (3.17) Pn A(P/A, i, N - n 1) (principle
    payment)
  • Figure 3.19

5
Add on Loans
  • Simple Interest!!!
  • Precalculated interest and paid in equal
    installments
  • Quoted is add on rate (simple) ex - 12 2 years
  • nominal is 21.60 !
  • Effective is 23.87 !
  • Again, to find use linear interpolation

6
Variable rate mortgages
  • mortgage - buying property
  • monthly rates
  • changing rate over time (rises a few years then
    fixes to a certain rate) or (tied to some index
    (T-Bills)
  • figure3.22

7
Bond Terminology
  • Mortgage Bond - if default on bond, property
    backs bond
  • Debenture Bond - simply pledge overall assets
  • Par value - Face value (usually in even
    denominations (1000s))
  • Maturity date - Date Par value repaid
  • Coupon Rate - Interest rate paid (annual coupon
    rate)
  • Discount Bond - A bond that sells below par
    (face) value
  • Premium Bond - A bond that sells above par (face)
    value
  • Market Price - Value of the bond

8
Figure 3.23
9
Bond valuation
  • yield to maturity - interest rate of equivalence
  • future interest face value receipts market
    price
  • fig 3.24

10
Interpolation to find interest rate
  • pg 159

11
IEN255 Summer99 Chapter 3 HW2
  • Homework Assignment
  • Chapter 3
  • s 3.66 3.73 3.78
  • Due with chapter 4 homework (likely Tues June 29)
Write a Comment
User Comments (0)