You have a loan outstanding. It requires making five annual payments of $7,000 each of the end of the next five years. Your bank has offered to allow you to skip making the next four payments, and in lieu of these payments, make one large payment at the end of the loan’s term in five years. If the interest rate on the loan is 6%, what final payment will the bank require you to make so that it is indifferent to the two forms of payment?
You have a loan outstanding. It requires making five annual payments of $7,000 each of the end of the next five years. Your bank has offered to allow you to skip making the next four payments, and in lieu of these payments, make one large payment at the end of the loan’s term in five years. If the interest rate on the loan is 6%, what final payment will the bank require you to make so that it is indifferent to the two forms of payment?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You have a loan outstanding. It requires making five annual payments of $7,000 each of the end of the next five years. Your bank has offered to allow you to skip making the next four payments, and in lieu of these payments, make one large payment at the end of the loan’s term in five years. If the interest rate on the loan is 6%, what final payment will the bank require you to make so that it is indifferent to the two forms of payment?
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