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Price Amortization System (French)


Price Amortization System (French)
Price Amortization System (French)

 

Price Table

Price Amortization System (French)

In this post, it will be explained how to take out a bank loan using the French amortization method, which is widely used in the financial sector.


Amortization using the French method, progressive or classic, is characterized by the payment of accrued interest, that is, at the end of each payment, and the payment of constant installments in each period. Interest decreases over loan periods and the amortized capital increases with each new period.


The main characteristic of this methodology is that the installments or payments always have a fixed value ("PMT") made up of interest ("i") and the amortized value of the principal or the amount borrowed ("A")


A bank loan amortized using the French method has the following information:

  • n - Month = Month;

  • PMT = Installment = Payment;

  • i = Interest = Interest;

  • A = Amortization = Amount amortized;

  • SD (Debit Balance) = Fixed Amount.

The financial condition that must be met in any bank loan is that the present value of the cash flows from the bank debt must equal the money borrowed at t=0 and the interest rate on the loan, known as "i" or cost of debt.


Formula for calculating financing installments using the French Amortization Method:


Price Amortization System (French)
Price Amortization System (French)

It is very important to note that in the formula, interest and time must be in the same time units. For example, if payments are made annually, the "PMT" installments will be annual and the interest rate Kd must be an annual interest and the time period must be in years. If the installments are monthly, the interest rate "i" must be a nominal monthly rate and the time "n" must be in months.


Example:

You are buying a car worth R$50,000.00 (PV), at a monthly interest rate of 1.25%, over a period of 36 months. What should be the installment you will pay?


PV= R$50,000.00

n = 36 months

i = 1.25% a.m.


Formula:


Price table
Price Amortization System (French)

Value of fixed monthly installment: R$ 1,733.27 for 36 months


Example of Excel spreadsheet:


Price Amortization System (French)

Price table spreadsheet
Price table spreadsheet

Graph that shows the behavior of installments, amortization and interest over time.


Price table graph
Price table graph

Below you can download the spreadsheet for this example.



Tabela price II
.xls
Download XLS • 122KB

















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