Amortization

We know, it sounds like a spell from Harry Potter, but it really just refers to paying off debts with a fixed repayment schedule. Excited? It'll be way more useful than learning fake spells, trust us.

Basic OperationsMultiplication and Division
LanguageEnglish Language

Transcript

00:23

the price right but if we think about how much

00:26

each is used well then it's a horse of a

00:28

different color So how many times will you wear a

00:31

prom dress in life and generally gals We're talking to

00:34

you once five times maybe ten times at the absolute

00:38

most right so how much did it cost you Per

00:41

wearing five hundred bucks Initial gauss divided by ten times

00:44

a wearing it is well fifty bucks of wearing And

00:49

if you weren't five hours each time you wore the

00:51

dress and yet cost ten bucks an hour Well how

00:55

about that super expensive bed for two grand Well you

01:01

think it'll last a half dozen years and you'll use

01:03

it pretty much every night Vacations accepted Well let's say

01:08

it last about two thousand nights How much did it

01:10

cost for use Yeah the dollars He slept on a

01:14

feather heaven for eight hours and hung out on it

01:16

for another two doing homework and eating crackers and stuff

01:23

So that's Ten hours for a dollar or ten cents

01:26

an hour for chief So if you thought about going

01:29

that money as if it was alone you took out

01:32

to buy that prom dress or bed you'd have amaar

01:35

ties There costs over that period at roughly the rates

01:39

noted And since you're advertising it over a very short

01:43

period of time for the prom dress prom dresses expensive

01:46

per hour and vice versa for the bed So what

01:51

if there was interest costs involved And you paid everything

01:55

down annually Well let's pick just on the prom dress

01:58

to illustrate what if you had to borrow that five

02:01

hundred bucks from crazy uncle larry the one who talks

02:03

to walls he charges you ten percent interest per year

02:08

on the dress and you pay it all off of

02:09

the end of the year So now the dress cost

02:12

you the initial five hundred plus the ten percent interest

02:15

Well the real total cost of the dress was actually

02:17

five hundred fifty dollars and the cost for wearing it

02:20

ten times was fifty five bucks not fifty And the

02:25

fancy formula is here Where is the periodic payment in

02:29

this case is just a one year period that he

02:32

was the principal or five hundred bucks and eyes The

02:35

interest rate the ten percent and it's just a one

02:38

year period So you're done and that's how you get

02:48

to the five hundred fifty bucks And uncle larry is

02:50

proud of you He'll be singing your praises all day 00:02:52.818 --> [endTime] long right here on the wall