Question

How lenders and borrowers benefit from an amortization schedule.

How the time value of money equation can be modified to include more complex calculations.

Answer 1

Amortization schedule shall include the payments that shall be made on periodic basis. It consists of details such as principal and the interest breakup on every payment. This helps the lenders/borrowers to have an idea about the amount that goes into repayment of the loan and the amount that should be recognized as interest income in case of lender and interest expense in the case of the borrower. The interest rate shall be very high initially and the amount that goes into principal repayment shall be comparitively lower. As time passes the interest payment shall be less and the amount that goes into principal repayment shall be higher.

There shall be tax deduction in the current year itself even thought it has not been repaid.

Amortization schedule gives an idea about the amount of loan that is ourstanding and the number if payments due etc, thereby it helps the lenders and borrowers to pre plan their finance accordingly.

Time value of money shows the effect of receiving the money instantly rather than later. It helps to find the future value of current money by incorporating complex arthematics by making use of inflation rate, time, amount etc. Time value of money can be modified to incorporate the growth also which can be taken into consideration.