Podcast
Questions and Answers
What is the total interest paid by DD Company when it repays its loan on June 30, 2018?
What is the total interest paid by DD Company when it repays its loan on June 30, 2018?
- P625,000
- P1,325,000 (correct)
- P250,000
- P150,000
How much is the remaining principal balance after the payment on June 30, 2016?
How much is the remaining principal balance after the payment on June 30, 2016?
- P2,500,000
- P1,500,000
- P2,000,000 (correct)
- P1,000,000
What is the formula used to determine the periodic payment for a loan?
What is the formula used to determine the periodic payment for a loan?
- $R = rac{PV imes i}{(1 - (1 + i)^{-n})}$ (correct)
- $R = rac{PV imes (1 + i)^n}{n}$
- $R = rac{PV}{(1 + i)^n}$
- $R = rac{PV}{n}$
What is the amount of each payment made by DD Company on their loan?
What is the amount of each payment made by DD Company on their loan?
What is the interest expense calculated during the period from June 30 to December 31, 2015?
What is the interest expense calculated during the period from June 30 to December 31, 2015?
What is the formula used to calculate interest in this scenario?
What is the formula used to calculate interest in this scenario?
Which of the following best describes the relationship between expected returns and risk?
Which of the following best describes the relationship between expected returns and risk?
If the principal amount is $50,000 and the interest rate is 10%, what is the interest for one period of 6 months?
If the principal amount is $50,000 and the interest rate is 10%, what is the interest for one period of 6 months?
What happens to the outstanding principal at the end of each period?
What happens to the outstanding principal at the end of each period?
What would be the total amount of interest earned after 6 periods if no payments are made on the principal?
What would be the total amount of interest earned after 6 periods if no payments are made on the principal?
Which statement correctly reflects period payments in the given table?
Which statement correctly reflects period payments in the given table?
If an investor wants to avoid risk entirely, what could they expect in terms of return?
If an investor wants to avoid risk entirely, what could they expect in terms of return?
Why is it essential to understand the risk-return trade-off in business finance?
Why is it essential to understand the risk-return trade-off in business finance?
What is the relationship between risk and return in investment opportunities?
What is the relationship between risk and return in investment opportunities?
Which of these best defines conservative risk tolerance?
Which of these best defines conservative risk tolerance?
What is the primary function of portfolio management?
What is the primary function of portfolio management?
What distinguishes aggressive risk tolerance from conservative risk tolerance?
What distinguishes aggressive risk tolerance from conservative risk tolerance?
Which statement best describes investment diversification?
Which statement best describes investment diversification?
What does risk tolerance classify?
What does risk tolerance classify?
What best defines a portfolio in the context of investments?
What best defines a portfolio in the context of investments?
What is the expected behavior of a moderate risk tolerance investor when faced with uncontrollable risks?
What is the expected behavior of a moderate risk tolerance investor when faced with uncontrollable risks?
Flashcards
Loan Amortization
Loan Amortization
A loan repaid in equal payments over a set time.
Loan Amortization Table
Loan Amortization Table
A table showing loan payment breakdown (interest & principal) over time.
Interest Calculation (Loan)
Interest Calculation (Loan)
Calculating interest earned or paid over a loan's life. Part of each payment goes to cover interest.
Periodic Loan Payment
Periodic Loan Payment
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Amortization Schedule
Amortization Schedule
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Loan Amortization Formula
Loan Amortization Formula
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Simple Interest (I)
Simple Interest (I)
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Principal (P)
Principal (P)
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Interest Rate (r)
Interest Rate (r)
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Time Period (t)
Time Period (t)
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Period Payment (A)
Period Payment (A)
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Amount Repaid (C)
Amount Repaid (C)
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Outstanding Principal (D)
Outstanding Principal (D)
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Risk-Return Trade-off
Risk-Return Trade-off
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Risk Tolerance
Risk Tolerance
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Conservative Risk Tolerance
Conservative Risk Tolerance
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Moderate Risk Tolerance
Moderate Risk Tolerance
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Aggressive Risk Tolerance
Aggressive Risk Tolerance
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Portfolio Management
Portfolio Management
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Investment Diversification
Investment Diversification
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Portfolio
Portfolio
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Study Notes
Loan Amortization
- Loan amortization is repaying a loan in equal payments over a specific period.
- DD Company borrowed $3 million from ASC Bank at 10% annual interest.
- Loan payments were $500,000 every December 31 and June 30 until the loan was paid off.
- An amortization table outlines the principal, interest, and balance for each payment.
Amortization Table Example
- The table shows loan payments, interest, principal payment, and outstanding principal balance over time.
- Initial loan balance: $3,000,000
- December 31, 2015 payment: 650,000,Interest:650,000, Interest: 650,000,Interest:150,000, Principal: 500,000,NewBalance:500,000, New Balance: 500,000,NewBalance:2,500,000.
- Following payments and balances are calculated in sequence, illustrating how the loan is repaid gradually.
Calculating Interest
- To calculate interest from June 30 to December 31, 2015: 3,000,000x103,000,000 x 10% x (6/12) = 3,000,000x10150,000
Calculating Regular Payments
- To compute equal regular loan payments use the appropriate formula.
- Formula 1: R = PV / PVIFA
- Formula 2: R = PV / (1 - (1 + i)^-n) * i (Where R = payment, PV = present value, i = interest rate, n=number of periods).
Example 2: Mobile Phone Loan
- A loan of $50,000 to buy a mobile phone was repaid every 6 months over three years.
- The interest rate is 10%, compounded semi-annually.
- The periodic payment is $9,850.86.
Amortization Schedule Example
- This example uses the previous formula to calculate an amortization schedule for the $50,000 loan.
- It shows payments, interest, principal, and the outstanding balance with an amortization schedule table.
Learning Modules: Risk and Return
- Increased expected returns often require higher risk acceptance on the part of the investor.
- Investors have different risk tolerance levels.
- Risk tolerance is the willingness to accept risk. It is categorized into conservative, moderate, and aggressive.
Conservative Risk Tolerance
- Investors with a low risk tolerance expect minimal loss when investing.
Moderate Risk Tolerance
- Investors display a moderate approach to investing, accepting some risk to gain higher profits, but pulling out of investments if risk is too great.
Aggressive Risk Tolerance
- Investors with a high risk tolerance are willing to invest highly in potentially high returns but higher risk investments, even accepting potentially total loss.
Portfolio Management
- Portfolio management involves planning investments based on risk tolerance to meet financial goals and timeframes.
- The plan may include diverse investments like stocks, bonds, CDs, or other money market instruments depending on the investor's strategy.
Investment Diversification
- Investors should spread their investments across different assets (e.g., stocks, bonds, real estate) to reduce risk.
- "Putting eggs in different baskets." is the method for investment diversification
- This is because of the risk reduction that occurs with investing in multiple avenues.
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Description
Explore the concept of loan amortization through examples and calculations. This quiz covers how loan payments are structured, the creation of an amortization table, and the formulas used for calculating regular payments and interest. Understand the key components of repaying loans effectively.
