Compare the annual payments calculated and potential risks or benefits involved for a foreign borrower if interest rate increased or decreased.
Compare the annual payments calculated and potential risks or benefits involved for a foreign borrower if interest rate increased or decreased.
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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Question
Compare the annual payments calculated and potential risks or benefits involved for a foreign borrower if interest rate increased or decreased.
Transcribed Image Text:Let us assume that the minimum interest is 5%:
Loan
(М)
Years
1
2
3
4
$50.00
Principal
Interest
Maturity in
($2.05) ($1.57)
($2.50)
($9.05)
($1.07)
($0.55)
Interest
Principal
Total
5.00%
($9.50) ($9.98) ($10.48) ($11.00)
5
years
раyment
($11.55) ($11.55) | ($11.55) | ($11.55) ($11.55)
When the interest rate will be 12%:
Years
1
2
3
5
(M)
$50.00
Loan
($6.00)
($7.87)
($5.06) ($4.00) ($2.81) ($1.49)
($8.81) ($9.87) ($11.06) ($12.38)
Interest
Principal
Principal
Interest
12.00%
Total
Maturity in years
5
payment
($13.87) ($13.87) | ($13.87) ($13.87) | ($13.87)
Let us assume that the maximum interest will be 15%:
Loan
Principal
(M)
$50.00
Years
1
2
3
Interest
($7.50)
($6.39)
($5.11) ($3.64)
($1.95)
Interest
15.00%
Maturity in
Principal
($7.42)
($8.53)
($9.81) ($11.28) ($12.97)
5
years
Total
payment
-$14.92
($14.92)
($14.92) ($14.92) ($14.92)
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