Finance Formulas / June 12, 2018 / Luz Tyson

Their simplicity makes them a popular option; no need to attempt to time the market or worry about distribution timing. Also, immediate payment annuities, as opposed to front-loaded annuities, can help lower taxes by deferring payments to a time when the annuitant is in a lower tax bracket.

The PV, or present value, portion of the loan payment formula uses the original loan amount. The original loan amount is essentially the present value of the future payments on the loan, much like the present value of an annuity.

When you make a down payment on a purchase and use a loan to pay for the remainder, you instantly reduce the amount of interest you pay over the lifetime of the loan. For example, if you borrow $100,000 on a loan with a 5% interest rate, you owe $5,000 in interest in the first year of the loan alone. However, if you have a $20,000 down payment, you only need to borrow $80,000. As a result, during the first year, your interest is only $4,000, saving you $1,000 in the first year alone. Thus, it pays to have a sizable down payment on your mortgage as it will save you thousands of dollars in interest over the lifetime of the loan.

Because of the cost principle (and other accounting principles), assets are generally reported on the balance sheet at cost (or lower) amounts. As a result, it would be incorrect to assume that the total amount of stockholders' equity is equal to the current value, or worth, of the corporation.

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