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Calculate present value of an annuity loan | Free template

Calculate present value of an annuity loan is a free template to calculate the value or settlement amount for an annuity loan sold in second hand from the previous owner to a new holder.

An annuity loan is a loan where an equal annuity is paid on each payment date from a borrower to a lender. An annuity is made up of amortization and interest, where the interest component is greater than the amortization part in the beginning and then being less than the amortization part at the end. The calculation of annuities in an annuity loan means that for a given interest rate on the loan the entire amount for the loan is split in equal annuity payments over predetermined periods in the future based on the maturity of the loan.

An annuity loan can be established as a permanent debt which makes it possible for a holder or a lender to sell this annuity loan to another investor. When an annuity loan is transferred, the buyer should pay a cash amount or a settlement amount to the seller and the settlement amount is calculated by valuing the annuity loan.

The settlement amount for an annuity loan is calculated by discounting future annuities using a market interest rate. The market interest rate for an annuity loan may be the risk-free rate on the corresponding coupon bond plus a risk premium. The interest rate applicable for an annuity loan is determined by negotiations between the buyer and the seller who agrees on a price in the form of a simple annual interest rate on the loan.

You can use this template when you want to sell or buy a debt in the form of an annuity loan to calculate the settlement amount to be paid for the annuity loan on the settlement date.
Updated: 01-01-2015 | Created by All-templates.biz

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