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Chapter 5

Actuarial Science 2053 Chapter Notes - Chapter 5: Amortization Schedule, Scud, Aldehyde


Department
Actuarial Science
Course Code
AS 2053
Professor
Steven Kopp
Chapter
5

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Chapter 5 – Repaying a Debt
Amortization of a Debt (section 5.1)
Interest bearing loans are often paid back by
means of a series of equal payments at equal
time intervals
we say the loan is being amortized
It is useful to know how much of each loan
payment goes towards:
1. Paying the interest on the loan
and
2. Repaying the loan (that is, how much of
each payment goes towards reducing the
principal)

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3. We are also interested in determining the
outstanding balance of the loan after each
payment has been made
To answer the above questions, we construct
an amortization table
Example 5.1.1
A mortgage of $80,000 is taken out at j2 = 6.5%,
with monthly payments over 25 years. Create an
amortization schedule for the first 6 months of
payments.

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Solution to 5.1.1
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