4. Liam borrows $10,000 at an effective periodic rate of i. The loan will be paid back with 10 payments at the end of each period. Each payment will consist of $1,000 plus the interest owed for that period. This means the principal in each payment is $1,000. For example, the first payment will be $1,000+ $10, 000i. Show that the present value of these payments at the given interest ratei is $10,000. Hint: Try to figure out what the pattern the payments follow. Follow up hint: You may recognize one of the pieces as a decreasing annuity.

4. Liam borrows $10,000 at an effective periodic rate of i. The loan will be paid back with 10 payments at the end of each period. Each payment will consist of $1,000 plus the interest owed for that period. This means the principal in each payment is $1,000. For example, the first payment will be $1,000+ $10, 000i. Show that the present value of these payments at the given interest ratei is $10,000. Hint: Try to figure out what the pattern the payments follow. Follow up hint: You may recognize one of the pieces as a decreasing annuity.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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