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To help pay for university, you have just taken out a $1000 government loan that makes you pay $158 per year for 20 years. However, you don't have to start making these payments until you graduate from university two years from now. Why is the yield to maturity necessarily less than 15%? (This is the yield to maturity on a normal $1000 fixed-payment loan on which you pay $158 per year for 20 years.) If your loan ($158 per year for 20 years starting two years from now) had the same yield to maturity as a normal fixed-payment loan with payments of $158 per year for 20 years, then the present value of each $158 payment on your loan would be the present value of each corresponding $158 payment on the normal fixed-payment loan, and therefore today's value of your loan today's value of the normal fixed-payment loan. For today's value of your loan to be the same as today's value of the normal fixed-payment loan, the present values of your the present values of your payments. would be yearly payments must For that to happen, the yield to maturity on your loan must since yield to maturity is

To help pay for university, you have just taken out a $1000 government loan that makes you pay $158 per year for 20 years. However, you don't have to start making these payments until you graduate from university two years from now. Why is the yield to maturity necessarily less than 15%? (This is the yield to maturity on a normal $1000 fixed-payment loan on which you pay $158 per year for 20 years.) If your loan ($158 per year for 20 years starting two years from now) had the same yield to maturity as a normal fixed-payment loan with payments of $158 per year for 20 years, then the present value of each $158 payment on your loan would be the present value of each corresponding $158 payment on the normal fixed-payment loan, and therefore today's value of your loan today's value of the normal fixed-payment loan. For today's value of your loan to be the same as today's value of the normal fixed-payment loan, the present values of your the present values of your payments. would be yearly payments must For that to happen, the yield to maturity on your loan must since yield to maturity is

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter19: The Basic Tools Of Finance
Section19.1: Present Value: Measuring The Time Value Of Money
Problem 1QQ
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To help pay for university, you have just taken out a $1000 government loan that makes you pay $158 per year for 20 years. However, you don't have to start making these payments until you graduate from university two years from now. Why is the yield to maturity necessarily less than 15%? (This is the yield to maturity on a normal $1000 fixed-payment loan on which you pay $158 per year for 20 years.) If your loan ($158 per year for 20 years starting two years from now) had the same yield to maturity as a normal fixed-payment loan with payments of $158 per year for 20 years, then the present value of each $158 payment on your loan would be the present value of each corresponding $158 payment on the normal fixed-payment loan, and therefore today's value of your loan today's value of the normal fixed-payment loan. For today's value of your loan to be the same as today's value of the normal fixed-payment loan, the present values of your the present values of your payments. would be yearly payments must For that to happen, the yield to maturity on your loan must since yield to maturity is
Transcribed Image Text:To help pay for university, you have just taken out a $1000 government loan that makes you pay $158 per year for 20 years. However, you don't have to start making these payments until you graduate from university two years from now. Why is the yield to maturity necessarily less than 15%? (This is the yield to maturity on a normal $1000 fixed-payment loan on which you pay $158 per year for 20 years.) If your loan ($158 per year for 20 years starting two years from now) had the same yield to maturity as a normal fixed-payment loan with payments of $158 per year for 20 years, then the present value of each $158 payment on your loan would be the present value of each corresponding $158 payment on the normal fixed-payment loan, and therefore today's value of your loan today's value of the normal fixed-payment loan. For today's value of your loan to be the same as today's value of the normal fixed-payment loan, the present values of your the present values of your payments. would be yearly payments must For that to happen, the yield to maturity on your loan must since yield to maturity is
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