Note: if you cannot remember how to model reducing balance systems with regular repayments, revise notes for 3.1 Modelling Reducing Balance Systems with Regular Repayments.
Guidelines to using a Table for Reducing Balance Systems
- Tables provide a convenient method for analysing reducing balance systems, especially when there are regular systemic changes (e.g. the interest rate or repayments change regularly).
- The columns of the table should list, the compounding period, payment, interest charged, principal addition (i.e. the amount the system has increased/decreased during each compounding period) and the balance at the end of the compounding period.
- The principal addition can be calculated by as follows: