; FAQ 833: PPA/ARP Shortfall Payment Calculation using Segment Rates

FAQ 833: PPA/ARP Shortfall Payment Calculation using Segment Rates

Problem:

How are the PPA 7-year and ARP21 15-year amortization payments for the funding shortfall calculated?


Solution:

For the PPA 7-year shortfall amortization method, review the Example 1 below. For the APR21 15-Year shortfall amortization, review the Example 2 below. Both examples assume there are no prior amortization payments to consider.

EXAMPLE 1 - PPA 7-year amortization method
The PPA funding shortfall amortization payment is calculated using the first two PPA Minimum funding tiered rates.
EX: Funding rates are 5%, 5.5%, 6%
Funding Shortfall = 123,226

Funding factor calculation:
1/(1.05)^0 = 1.000000
1/(1.05)^1 = 0.952381
1/(1.05)^2 = 0.907029
1/(1.05)^3 = 0.863838
1/(1.05)^4 = 0.822702
1/(1.055)^5 = 0.765134
1/(1.055)^6 = 0.725246
Sum of 7 factors = 6.036331

123,226/6.036331 = 20,414.06 amortization payment for PPA 7-year payment


EXAMPLE 2 - ARP21 15-year amortization method

The ARP21 funding shortfall amortization payment is calculated using the first two PPA Minimum tiered rates.
EX: Funding rates are 5%, 5.5%, 6%
Funding Shortfall = 123,226

Funding factor calculation:
1/(1.05)^0 = 1.000000
1/(1.05)^1 = 0.952381
1/(1.05)^2 = 0.907029
1/(1.05)^3 = 0.863838
1/(1.05)^4 = 0.822702
1/(1.055)^5 = 0.765134
1/(1.055)^6 = 0.725246
1/(1.055)^7 = 0.687437
1/(1.055)^8 = 0.651599
1/(1.055)^9 = 0.617629
1/(1.055)^10 = 0.585431
1/(1.055)^11 = 0.554911
1/(1.055)^12 = 0.525982
1/(1.055)^13 = 0.498561
1/(1.055)^14 = 0.472569
Sum of 15 factors = 10.63045

123,226/10.63045 = 11,591.80 amortization payment for ARP21 15-year payment