Interest, present value and optimization of instalments of a loan transaction

Interest, present value and optimization of instalments of a loan transaction

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Article ID: iaor2000247
Country: Hungary
Volume: XXVII
Issue: 3
Start Page Number: 123
End Page Number: 142
Publication Date: Jan 1996
Journal: Szigma
Authors:
Keywords: financial
Abstract:

We expect that interest will make equivalent the value of a present amount of money and the present value of future amounts of money offered instead of it. Surprising, but we prove that despite our expectation today's practice of lending has a chance for us to manipulate the present value of a loan transaction. We show there exist exact and determinable parameters, which we can consider with a loan transaction, as a non-zero-sum game, and we can make its present value definitely positive and optimal for both of the parties at the same time through the proper selection of instalments! We introduce an algorithm which will show the chance for the optimisation through a sample taken from the practice of a loan based leasing construction. This algorithm extends the simplicity of the constraints of this model towards the general case.

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