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Longer-term loans and negative amortization

In the last exercise, even though the interest rate kept rising, the payment was still high enough to avoid negative amortization. In this exercise, we will see a case where there is negative amortization.

This will be accomplished by changing the payment frequency from monthly to annually. Another method would have been to increase the interest rate at a more rapid pace, but the increases would have needed to be over 5% per period!

Re-enter the PMT() formula and annual interest and principal payments, and watch to see when negative amortization happens!

This exercise is part of the course

Loan Amortization in Google Sheets

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Exercise instructions

  • Add the annual PMT() formula in column G, using the annual interest rate in B4 and the amortization periods in B8.
  • Fill in the annual interest charges in column I, using the annual interest rate in column H.
  • Calculate the portion of the payment applied to principal in column J.

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