FIN - Finance FIN 3301 Lecture Notes - Lecture 1: Interest Rate Risk, Liquidity Risk
10 Jul 2022
School
Department
Course
Professor
Document Summary
There is a limit to the function (diminishing return): pv annuity is calculated for loans (mortgages) for instance. Calculate loan amount based on how much money you can pay: pmt/i is a perpetuity. (forever investment, fv=pv(1+i)^n, fv annuity = pmt/i * (1-(1+i)^-n, amortization application, annual pmts= pv/i/(1-(1+i)^-n) = 178821. 46, adjust the compounding period and interest rate. Pmt = pv/(i/12) / (1-(1+(i/12))^nx12: total cost of the loan is the difference between the initial paid value and sum of pmts made. Total interest of monthly compounding is less than annual compounding because you"re paying the principal faster. The principal amount is being reduced faster, thus, the interest gets reduced faster: check excel. If you need cash the loan will cost you more, an in fine loan may be more suitable. If you have cash, the loan will cost you less.
