To help pay for college, you have just taken out a$1,000 government loan that makes you pay $126per year for 25 years. However, you don’t have to startmaking these payments until you graduate from collegetwo years from now. Why is the yield to maturitynecessarily less than 12%? (This is the yield to maturityon a normal $1,000 fixed-payment loan on which youpay $126 per year for 25 years.)
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
To help pay for college, you have just taken out a
$1,000 government loan that makes you pay $126
per year for 25 years. However, you don’t have to start
making these payments until you graduate from college
two years from now. Why is the yield to maturity
necessarily less than 12%? (This is the yield to maturity
on a normal $1,000 fixed-payment loan on which you
pay $126 per year for 25 years.)
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