Amortization System by Multiple Contracts: the French system fallacy

Rodrigo De-Losso, Bruno Cara Giovannetti, Armênio de Souza Rangel

Abstract


By using an arbitrage argument, this article shows that the interpretation of what interest and amortization are at the French system is a fallacy, because it assumes the outstanding balance is refinanced every period at the same rate. Henceforth, it is offered another amortization system that replicates the original cash flow, but with a new interpretation of what is interest or principal in each payment. Depending on the tax regime, this different interpretation may have substantial effects.

Keywords


Amortization; French System; Interest; Tax



DOI: http://dx.doi.org/10.18836/2178-0587/ealr.v4n1p160-180

Economic Analysis of Law Review  -  ISSN 2178-0587

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