Shifting Gears

Shifting Gears - Shifting Gears… • We turn our...

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Unformatted text preview: Shifting Gears… • We turn our attention now to loans . • When money is borrowed, the borrower repays: – Principal- the original loan amount borrowed. – Interest- the amount the lender charges for borrowing the money. 1 Loans • There are three primary types of loans: – Pure Discount – All principal and interest for the loan is repaid in a lump-sum. – Interest Only – Only interest is paid until the principal is due in full at maturity. – Amortizing – Calls for equal payments, which include principal and interest; this is the most 2 Pure Discount Loans • A Pure Discount Loan is repaid in a lump sum. • It is what we learned in the previous chapter. • Say, you borrow $10,000 at 10% for three years. – No payments are made until the loan matures. 3 Interest Only Loans • A firm borrows $4,500 today for four years at 6.5% on an interest-only basis. Payments are made annually. How much does the company pay throughout the loan term?...
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This note was uploaded on 01/24/2012 for the course FIN 4260 taught by Professor Victorwakeling during the Spring '12 term at Kennesaw.

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Shifting Gears - Shifting Gears… • We turn our...

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