Principle of banking and finance - Assignment Example

1. Loan Amortization Schedule for Bank A End of year: Installment payment Interest Principle payment Ending balance 0 1280000 57344 6144 5120012288002573445898514461177354357344565151693112566145734454035194110737205573445154521901021530Total 286720282502584701021530Calculations 80% of 1600000= 1280000 (total amount loaned) Total interest paid:12% x 1280000/25=153600Principle + interest = 1433600Amount of annual installment = 1433600/25 = 57344Loan Amortization Schedule for Bank BAt 4.88% per month for 20 years: per annum it will translate to 4.

88%x12 = For 1280000, the interest will be 4.88% x 1280000/ 12= 5205 per month End of month:Installment payment Interest Principle payment Ending balance 0128000015594260533412746662559425953351269331355942585336126399545594257533712586585559425653381253320Total 279701290266701253320Question CI would work with bank B. this is because its accumulated interest is much less than that of bank A. after 5 years, I will have paid 28250/60 = 471 per month as interest while in bank B, I am paying slightly above 260 per month interest.2. Difference between a stock and a bondStocks, also referred to as shares are ownership units that represent an individual’s interests in a corporation.

In this case, a company is subdivided into small units-stocks-where each unit is sold to investors at a prescribed fee. Each stock earns dividend when the company earns profit. As such, the return on investment when a person buys stocks from a given company is the dividend. However, it is notable that the dividend is paid only if the company makes a certain amount of profit, Finn (1999).On the other hand, a corporate bond is a long-term debts owed to individuals. In this case, the corporate that issues the bond enters into a contract with the person that purchases the bond.

In the contract, the company promises to pay the total amount of debt after a prescribed period. In addition, to this, the corporate gives interest after every 6 months on each bond and in accordance with the term of the bond contract. 3. Importance of stock market to individuals, corporation and the economyStock market plays a pivotal role in the economy as it is a key to the growth of commerce and industry and as such affects the economy to a large extent. The government can watch on the happenings of various sectors of the economy by a mare look at the trends in the stock market.

Equally, individuals who want to invest can compare the figures given in the stock market so as to make important investment decision, Elmuti (2003). For the corporate, they can either take a credit facility when they need to finance a project or float some of its stock in the stock market. As such, investors are able to buy the stock and thereby allowing the bank to raise the required capital, Fang (2006).ReferenceDuening, T. N., & Click, R. L. (2005). Essentials of business process. Hoboken, N.

J: John Wiley & Sons.Elmuti, D., (2003). The Perceived Impact of long-term loan Organizational Performance /?p=146, p. 146.Fang, L. C., (2006). Public finance management, 25(3): 269-287, 25(3), pp. 269-287.Fang, L. C., Jie, S. & McBride, A., (2005).Credit facilities for business, 44(4), pp. 413-432.Finn, W. (1999). Loan Amortization. Director, 53, 66–67.Gainey T. W., & Klass, B. S. (2003). "loan amortization 29, 207–229. Galanaki, E. & Papalexandris, N. (2005), strategies of paying huge loans Vol.

26 Iss: 4 pp. 382 - 396