In this video, learn how to visualize the trade-off between principal and interest in your payments.
- [Instructor] When you pay back a fully amortized loan,…every payment has two components:…the interest for the period and enough principle…to pay off the loan within a specified period.…In this movie, I'll show you how to visualize…the trade-off between principle…and interest in your payments.…My sample file is the Chart Principle and Interest workbook…and you can find it in the Chapter03 folder…of the Exercise Files collection.…In this workbook, I have calculated the interest…and principle components of a loan…that we see details for on the left side of the worksheet.…
So, this is a 24 period loan…and I assume it's a two year construction loan…paid off monthly.…The rate for such a short-term loan is usually fairly high.…In this case, I'm assuming 10.25%.…The loan was for $350,000, we're going to pay it all off,…and the payment is made at the end of a period.…Then, in columns E and F, I have calculated the interest…and principle components of each payment.…What I'd like to do is to visualize…how the interest and principle trade-off.…
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- Calculating the effect of interest rates and inflation
- Finding the arithmetic and geometric means of growth rates
- Calculating the future and present value of an investment
- Calculating loan payments for a fully amortized loan
- Calculating the effect of paying extra principal with each payment
- Finding the number of periods required to meet an investment goal
- Calculating net present value and internal rate of return
- Building a cash tracking worksheet
- Visualizing cash flows using a waterfall chart