Amortization System by Multiple Contracts: the French system fallacy

Authors

  • Rodrigo De-Losso FEA-USP
  • Bruno Cara Giovannetti FEA-USP
  • Armênio de Souza Rangel ECA-USP

DOI:

https://doi.org/10.18836/2178-0587/ealr.v4n1p160-180

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.

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Published

2013-08-19

Issue

Vol. 4 No. 1 (2013): Economic Analysis of Law Review

Section

Papers

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