Example 14 - Interest Only Payments

This example applies to our online demo Time Value of Money Calculator. The C-Value! program for Windows works in a similar way and has a few more features. Note, our online demo TVM calculator is limited to calculations using interest rates between 4.0% and 5.99%

Note:This topic has not been proofed and images need to be added. However, we believe that the steps are complete and accurate.

A "Special Series" , 5 year loan with first year's payments paying only the accrued interest.

1. Click the [New] button to clear any previous entries.
2. Set "Rounding" to "Ignore" by either:

• clicking on the "Rounding" button on the toolbar;
• clicking on the {Compute} menu choice and select {Rounding...};

1. 1) Set "Compounding" to "Monthly"
2. 2) Enter 5.625% for the "Nominal Annual Rate".
3. 3) Create a "Loan" event in row one of the cash flow input area.
4. A) Set the "Date" to November 1, 2004 (02/15/2004)
5. B) Set the "Amount" to $94,000.00
6. C) Set the "# Periods" to 1.
7. 4) Move to the second row of the cash flow input area. Select "Payment" for the "Event" type. Initially, the regular payment amount is unknown.
8. A) Set the "Date" to December 1, 2004 (12/01/2004)
9. B) Set the "Amount" to "Unknown"
10. C) Set the "# Periods" to 12.
11. 5) Display the "Special Series Window" by clicking in the second row's right most column under "Special Series...".
12. A) Select the "Interest Only" tab at the top of the window.
13. B) Be sure "Activate Interest Only series for the currently highlighted event" is checked.
14. C) Click [OK]. Notice that the "Amount" column will now say "Interest Only".
15. 6) Move to the third row of the cash flow input area. Select "Payment" for the "Event" type. Initially, the regular payment amount is unknown.
16. A) Set the "Date" to December 1, 2005 (12/01/2005)
17. B) Set the "Amount" to "Unknown"
18. C) Set the "# Periods" to 48.
19. 7) Calculate the unknown. The result is $2,191.45
20. 8) If you want to see a detailed amortization schedule showing how the monthly payment is allocated between principal and interest click on the "Amortization" tab above the input area or press [F4].

Back to the online Time Value of Money Calculator.