Welcome back.
So in this lecture, we are going to calculate the principal amount in the installment.
So basically in the last lecture we discussed at what will be the annual installment to pay back the
loan and to put the values into context.
We discussed that if we have a loan of fifty thousand dollars and we have to pay an annual installment
of eight thousand eight forty nine to pay back the loan for 10 years.
So in this example, in this lecture, we are going to work out, separate out the principal amount
as well as the interest payment.
So let us first discuss what is this concept.
So when you pay back your loan installment, partial amount is towards the repayment of the original
amount of this.
Fifty thousand dollars.
And there is a remaining amount, which is for the interest as well.
So here in our example, we have the original loan amount of fifty thousand dollars.
And first of all, rather than going to this exos shortcode formula, I will be working on this Manuel
schedule here that we do without the help of Exel, I mean, without the help of that Advance Excel
formula.
So we have at zero.
We have taken the loan of fifty thousand dollars and the interest will be 12 percent on the loan that
is due at the beginning of the period.
So that will be 12 percent.
I will be referring it here and this will be six thousand dollars.
Now the payment of the loan will be, you know, we already have discussed that will be eight eight,
four nine.
And if we have made a total payment of just give me one minute of it, apply a minus sign to sure.
This is just a positive value so that I can work out my minus plus accordingly.
So forget that it is a payment.
Just us say that we have to pay it at four nine and just forget the minus sign.
Now we have to discuss what is the amount of principal in this installment.
So definitely if out of it at four nine six thousand is the interest payment, the only remaining amount
of two eight four nine is the contribution towards your principal principal amount of loan.
Now, if the beginning amount of loan was fifty thousand dollars and you have paid only to add to eight
for nine towards the principal, the loan at the end of the period will be forty seven thousand and
one fifty one.
Similarly, we will apply the 12 percent.
Add this value here and I just have to apply to 12 percent and that would be the loan for the second
year.
But no, I cannot keep on working on line by line.
So what I would rather do is that I will just make sure my studies are referenced properly and I will
copy paste the values in all the 10 cells below.
So this one here and now, I will just loan the interest rate here and just log the 12 percent interest
here.
I want like this one because I want it to go downwards.
So I will just log this one and then this is I'm sorry, this is OK.
Everything is OK.
So I will just copy and paste this values to all the ten years below so you can see that our interest
amount is falling each year and our principal amount is increasing each year.
And definitely that is understandable.
As the spending amount of loan is falling, the interest amount is falling and out of the same installment
each year.
If the interest is falling, the principal amount is increasing.
So that is definitely something logical.
So what we have to do is that we have to calculate the principal amount of the loan payment each year.
Rather than working on this Manuel schedule, we are going to apply the actual formula.
So I'm going to say Quispe empty.
So what this party stands for principal and then payment.
Principal payment.
Now, I was asking you for rate.
The rate is 12 percent here.
And then Axel is asking you for the PR pass transfer period.
So I will say I'm talking about first speed right now and next year asking you for NPR that are basically
a number of periods.
And then Axel is asking the present value status, this one future value we don't have solid just ignore
and then type has to be zero and I will just press control.
Enter now so you can see that Axel has given us a value of two eight four nine.
So Axel is telling me that the principal amount in the first year will be to add four nine.
And by the way, I already know that.
So I will just copy paste this formula in the cells below.
But let's make sure we have locked the cells properly.
So except in I'm going to lock all of them and now I will copy and paste the cells and all the cells
below, and here we go.
If we can just compare these values to this one two eight four nine to eight four nine three one nine
one three one nine one and last one seven nine zero one seven nine zero one.
So you could work out manually using this long schedule or definitely you can use this shortcut approach
to calculate the principal amount of payment in each year.
Now, in the next lecture, we are going to talk about the same payment of this interest calculation
in the next lecture.
So you will be using a different formula for that.