BU283 Lecture Notes - Lecture 3: Down Payment
Document Summary
A friend wants to borrow ,000 and repay interest and principal (a balloon repayment) in full at the end of three years. How much money do you want from him in three years: ,000, ,010, ,100, ,300, ,331. Balloon = fv = principal x (1+ i)n = ,000x(1. 10)3 = ,331. Where: principal outstanding0 = amount owing at time 0, pvifa= present value interest factor of the annuity. A friend wants to borrow ,000 and repay interest and principal with three equal payments payable at the end of each of the three years. (see time line. ) What size payment should you ask for: , , , . Interest comes in two forms: blended payments, re-investment. With amortized loans, lender only earns i% if can re-invest at i% Using the loans balloon example from the previous slide: 331 total interest, 402. 11 x 3= 206. 33, borrower is paying 206. 33, lender needs to invest at 10% (difference between ti and bp) 331-
