The Mathematical Theory of Investment (Paperback)

This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1913 Excerpt: ...of $10,000, with interest at 5%, in five equal annual installments. By solving the amortization equation, or by equation (1) of 42, we find the expression for the annual installment, viz. From the table for the annuity that 1 will purchase, --at 5% =0.230975. % Consequently, the annual payment is R = $2309.75. Of this amount $500 must go to pay interest due, leaving $1809.75 to apply to the reduction of the principal. For the second year the principal outstanding will therefore be $8190.25, and the interest on this sum for the year at 5% will be $409.51, so that, after interest is paid, there will be available from the second installment $1900.24 for the reduction of the principal. The remaining parts of the schedule are computed in a similar manner. Schedule for the amortization of a debt of $10,000, with interest athjo, payable annually, in 5 equal annual installments: Several checks upon the accuracy of the work are possible. The first and most important is that the sum of the amounts in the column for "principal repaid" should be equal to the original principal. In the above schedule the slight discrepancy is caused by the fact that the tables employed are not sufficiently extended. Seven-place tables would give, for the annuity that 1 would purchase for five years at 5%, $0.2309748, and if this value were used, the results would check exactly. In the second place, the total interest paid should equal the interest for one year on the amount found by adding together the amounts in the column of " principal outstanding." Finally, the total interest plus the original principal should be equal to the total sum paid, i.e. five times the annual installment. EXAMPLE Construct the schedule for the amortization of a loan of $2000, at 6%...