Time Value Analysis - Assignment Example

Time Value of Money al Affiliation: The amortization of a loan is the payment of a loan over a given period of time, with an equal payment every given payment period, either quarterly, semi-annually, or annually. The amortization of a loan is a widely used way of loan repayment by many financial institutions. During the amortization of a loan, there are three significant aspects that are affected;The principal amount or the initial paymentThe Interest and its paymentThe present value of the annuity or the total payment1.

The PrincipalThis is the initial amount that was paid by the lending party to the individual or institution taking out the loan. The principal amount is paid out to the lender in equal instalments over the agreed period of time, and it is paid at specified intervals known as periods. Over time, the balance on the principal reduces after every given payment period.2. The Interest and its paymentThe interest is the amount of money that the individual taking the loan is charged for holding the amount for a given time period.

The interest is the cost of borrowing capital and is usually charged per period. The interest is charged on the remaining balance of the principal, i.e. it is charged on a reducing balance basis.3. The Present Value of the Annuity or the Total PaymentThe total value of the annuity or the total payment is based on the interest rate and the number of periods. This total value increases depending on the amount of time taken to repay the principal amount.ReferencesBesley, S., & Brigham, E. F. (2003).

Principles of finance. South Melbourne: Thomson Learning.Fields, E. (2002). The essentials of finance and accounting for nonfinancial managers. New York: AMACOM.