Loans & Amortization

Loan payment formulas, WACC, and the Fisher equation for real vs nominal interest rates.

Loan Payment (Annuity Formula)

PMT = fixed payment, P = loan principal, r = interest rate per period, n = number of payments.

PMT = P \cdot \frac{r(1 + r)^n}{(1 + r)^n - 1}

Weighted Average Cost of Capital (WACC)

E = equity, D = debt, V = E + D, r_e = cost of equity, r_d = cost of debt, T = tax rate.

WACC = \frac{E}{V} \cdot r_e + \frac{D}{V} \cdot r_d \cdot (1 - T)

Fisher Equation

i = nominal interest rate, r = real interest rate, π = inflation rate.

(1 + i) = (1 + r) \cdot (1 + \pi)

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