# Bullet vs Monthly Loan (equivalent)

ive been working in a model to convert bullet loans to monthly paid (french) and the results seems to be ok but im not confortable with the results.

If we compare both cash flows and discount every flow by each bullet rate, seems to be equivalent.

Both DCF = 0

So

A french loan @ nominal rate 29.28% (48 months) should be equivalent to a bullet loan (48 months) @ 39.81% nominal rate

• You may want to post your code. Why are you not comfortable with the results? Mar 25 at 15:36
• Because... * monthly rate should be lower than bullet --> 0k, you are receiving cash prior the other option. should be best to compare Effectiva rate of monthly payments vs nominal bullet. ******************************************** * monthly rate should be not lower than fwd rates, since the other option, invest at fwd should be > than monthly payments loan alternative Mar 25 at 16:33
• I'm confused as to what you're trying to do. "French" simply means that all periodic payments are equal - each consists interest and principal, so that in the end you have paid off all the principal and no bullet principal payment. You have the same fixed interest rate. In "bullet", you pay periodic interest (same every period) and also repay all the principal at maturity. In "french" you also pay the same every month, more than under "bullet", but ten nothing extra at maturity. Why do you have two interest rate here? What do they mean? Mar 25 at 17:36
• Yes Dimitri, if you check the DCF above the french loan, you have the bullet one. You paid capital at the end and interest at the end of the loan. The left ones are the Z coupon Spot rates. Need them to do the DCF on frech payments So a 85.75% bullet loan = 40.00% french loan. the mistake was in the forward rate, so the spots rates were not good. Mar 25 at 19:27