Amortizing Loans under Arbitrary Discount Functions

Carlo Mari ()
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Carlo Mari: DEIM-Department of Economics, Engineering, Society, Business Organization, University of Tuscia, 01100 Viterbo, Italy

JRFM, 2024, vol. 17, issue 5, 1-20

Abstract: A general methodology for loan amortization under arbitrary discount functions is discussed. It is shown that it is always possible to uniquely define a scheme for constructing the loan amortization schedule with an arbitrary assigned discount function. It is also shown that, even if the loan amortization is carried out from the sequence of principal payments and the sequence of accrued interest, the underlying discount function can be uniquely determined at the maturities corresponding to the installment payment dates. As a special case of the proposed approach, we derive the amortization method according to the law of simple interest.

Keywords: discount function; amortizing loans; outstanding balance; amortization schedule; compound interest; simple interest (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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