CHAPTER 4: AMORTIZATION

AND SINKING FUND

Mikee SIm

Mortgage

Is an agreement in which the lender claims on the

property placed as collateral until full payment is
made.

Collateral is usually not required by lending

agencies especially for salary or cash loans.
ITR
Employment Certificate

Amortization

Settlement of a loan including principal and

interests made by equal payments over a specific
period of time.

Periodic Payments equal payments.

Periodic Payment of Amortization

The Visage Printing Corporation will purchase a Multipurpose Printing Machine (prints, covers and fold
books) for P0.45 million. The corporation agrees to
pay 20% down payment to the producer of the
machine and the rest of the amount is payable every
3 months for 5 years. Money is worth 18%
compounded quarterly. Determine the periodic
payment.

Present Value of an Amortization

The monthly salary deduction for the loan applied by
an employee is P4,229.69. Determine the approved
salary loan if the interest charged is 24% compounded
monthly for 2 years. (Give your answer to the nearest
peso.)
Determine the cash value of a Sony flat TV if a 30%
down payment was made and the balance is amortized
at 18% compounded semi-annually. The mortgage
payment is P33,184.60 semi-annually for 1 1/2 years.

Outstanding Liability of an Amortization

2 Methods:
1.) Prospective Method or the Forward-looking Method
use future payments
*determine total number of payments
2.) Retrospective or Backward-looking Method
use past payments
*total number of payments is not given

Outstanding Liability of an Amortization

Ms. Lane, an employee of RickRoyce travel agency,
made a P50,000 travel loan. She promised to pay the
loan by salary deductions for 1 1/2 years payable
monthly at 9% compounded monthly.
a) Determine the monthly payment
b) Determine the outstanding balance after one year.
c) If the loan is terminated after the 12th payment, how
much will be discounted?

Outstanding Liability of an Amortization

The owner of Shoelace, maker of shoes and bags, made a loan of P70,000
from a bank for the replacement of a leather sewing machine. The loan is to
be paid at the end of each 3 months for 2 years at 20% compounded
quarterly.
a) Find the quarterly payment
b) If right after the 4th payment on his first loan, the owner decides to make
another loan of P45,000 to buy another machine payable quarterly for 1
year (interest rate is the same), find the total quarterly payment that the owner
has to make on the succeeding payment dates for the two loans.
c) If the owner decided to pay off his first debt after the 6th payment, how
much should he pay on the next payment date (include his payment for the 2nd
loan)?
d) From (c), how much was discounted on the first loan?
e) What is the outstanding liability of the second loan after the 2nd payment?

Outstanding Liability of an Amortization

Ms. T. Velasquez, owner of Zambales Airlines, promised to pay
P40,000 every month to MacroAirlines Banking Corp. for a loan
of P1.2 million for the planes' repair and maintenance. The
corporation offers 9% compounded monthly.
a) When will the loan terminate?
b) What is the outstanding balance after the 30th payment?
c) Using your answer in (b), determine the value of q. How many
more payments should be made after the 30th payment?
d) Is the last payment equal to the monthly payment of P40,000?
Why?

Amortization Schedule
shows principal and interest for each periodic
payment of the loan.
Period Periodic Interest at Principal at
Outstanding
(n) Payment the end of k the end of k Liability at the end
(R)
period (Ik) period (Ak) of k period (OLk)
0
ORIGINAL LOAN
1

R
nR

Ik=(OLk-1)i

Ak=R-Ik

OLk=OLk-1-Ak
0 or almost zero

=+

= A (orig)

Amortization Schedule
Construct an amortization schedule for an appliance
(Sony flat TV) loan to be repaid at P33,184.60 semiannually at 18% (m=2) for 1 1/2 years. Solve for the
present value of the loan.

Without Amortization Schedule

A loan of P60,000.00 is being amortized in 2 years at 16%
converted monthly. Determine
a) the monthly payment
b) the interest, principal, and outstanding balance after the
16th payment.

Final Irregular Payment

The Colegio de Salitran acquired a medical
equipment for its nursing school for P240,000. The
school owner agreed to pay it at P22,000 monthly
with interest rate of 16% compounded monthly.
Determine the following:
a) The number of regular payments and the final
irregular payment due date.
b) Amount of the irregular payment.
c) Construct the amortization schedule.

Sinking Fund
The accumulation of a desired future value over a
specific period of time by making periodic deposits
Sinking fund deposits equal deposits

Sinking Fund
The Mobius Strip Corporation is planning to buy a
printing machine 3 years from now. This will cost
P400,000. They decided to deposit quarterly in a
fund that pays 14% converted quarterly. Find the
following
a) sinking fund deposit
b) the amount after the 8th deposit
c) interest earned after the 8th deposit

Sinking Fund Schedule

shows accumulation of funds and interest earned in
each period
Period

Deposit

Interest
(At the end of
the period)
0.00

Amount in the
fund at the end
of the period
R

R
n

R
nR

Sinking Fund Schedule

The Mobius Strip Corporation is planning to buy a
printing machine 3 years from now. This will cost
P400,000. They decided to deposit quarterly in a
fund that pays 14% converted quarterly. Construct
the sinking fund schedule .