You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5,500. You plan to put down $1,200 and borrow $4,300. You will need to make annual payments of $1,200 at the end of each year. Show the timeline of the loan from your perspective. How would the timeline differ if you created it from the bank's perspective?
You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5,500. You plan to put down $1,200 and borrow $4,300. You will need to make annual payments of $1,200 at the end of each year. Show the timeline of the loan from your perspective. How would the timeline differ if you created it from the bank's perspective?
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 just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5,500. You plan to put
down $1,200 and borrow $4,300. You will need to make annual payments of $1,200 at the end of each year. Show the
timeline of the loan from your perspective. How would the timeline differ if you created it from the bank's perspective?
Show the timeline of the loan from your perspective. (Select the best choice below.)
OA. Year
Cash Flow $4,300
0
OB. Year
0
Cash Flow - $1,200
OC. Year
Cash Flow $5,500
0
OD. Year
1
- $1,200
1
$1,200
2
Cash Flow - $4,300 $1,200
- $1,200
2
$1,200
- $1,200 - $1,200
2
$1,200
3
- $1,200
3
$1,200
3
- $1,200
3
$1,200
- $1,200
4
$1,200
4
- $1,200
4
$1,200
5
- $1,200
5
$1,200
5
- $1,200
5
$1,200
Expert Solution
Answer
correct answer is option a)
| year 0 | year 1 | year 2 | year 3 | year 4 | year 5 | |
| cash flow | $4,300 | -1200 | -1200 | -1200 | -1200 | -1200 |
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