ABSTRACT
Loan amortization is one of the most basic applications used in the time value of money. A loan mainly involves a lending exercise. This chapter helps the readers to understand the difference between fixed and reducing balance types of loans, and to understand the calculation of equated monthly instalment (EMI). One of the advantages of a fixed rate type of loan is its simplified computation of EMI and its components, namely interest amount and principal payment. There is a direct method for calculating EMI using Excel. The PMT function directly helps us to calculate EMI. The chapter also helps the readers to understand calculating various components in loan schedule using Excel, and to understand effective annual rate. It provides the nitty-gritty of loans and introduced us to the functions that can help reduce the burden of extensive manual calculations.
