Creating a simple loan amortization schedule
As mentioned in Chapter 1, An Introduction to Financial Modeling and Excel, a loan amortization schedule is a type of financial model. The overall financial decision to be made is whether or not to accept the bank's terms and take the loan.
You will build a set of assumptions made up of interconnected variables. The model will be set up to perform calculations on those variables to eventually arrive at the periodic (usually monthly) repayment. This is the amount to be paid monthly until the loan is fully repaid. It is now left to the customer to decide whether they can afford the periodic repayment now and throughout the term of the loan.
The following is a more detailed step-by-step guide to creating an amortization schedule:
Assumptions: The first step is to prepare a list of assumptions.
Figure 7.26 – Assumptions
- The list, as shown in Figure 7.26, is as follows:
Cost of the Asset...