Now that we have covered the basic functions that relate to time value of money, let’s look at how we can enhance our debt calculations to allow for real world scenarios.
The first one is how to allow for ad hoc withdrawals and pre payments so that the debt recalculates to meet the original life of loan. So it is a 12 month loan and we should pay 5 731 per month but we need to take out another 50 000 in month 6. What needs to happen to the repayments so that at the end of the 12 months we are at the anticipated future value?
In order to understand how to do this, we first need to prove that mathematically we can re calculate the repayment required each month as if the loan only has the remaining life left. So in month 1 of a 12 month loan we calculate based on a loan of 12 months but when we are in month 2 we assume that we are only dealing with a 11 month loan and so on. All things being equal will it give us the same numbers?
To see the full course contents click here.