FM: Prospective and retrospective loan balances must agree
Specify whether the balance is immediately before or after a payment. The prospective method values remaining payments at that time; the retrospective method accumulates earlier cash flows. Their agreement is a useful timing check.
Worked example or practice scenario
A loan of 1,000 is repaid by two equal annual payments at 10%. The payment is 576.19. Immediately after the first payment, balance is 1,000×1.10−576.19 = 523.81. Prospectively it is the one remaining payment discounted one year: 576.19/1.10.
Try this next
Calculate the balance immediately before that first payment: 1,100. State why the difference is exactly the payment. For longer loans, label payment number and timing on every balance formula.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.
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