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SVEN [57.7K]
2 years ago
5

What is the yield to maturity (ytm) on a simple loan for $2000 that requires a repayment of $8000 in five years' time?

Business
1 answer:
babunello [35]2 years ago
6 0

The yield to maturity (YTM) on a simple loan is 31.9%

<h3>What is the yield to maturity?</h3>

The yield to maturity represents an overall total of all outstanding loan repayments. The yield to maturity of the security varies based on the bond's valuation and the number of remaining balances.

simple loan for $2,000

repayment of $8,000

time period 5 years

The formula for yield to maturity is

Yield to Maturity = [Annual Interest + {(FV-Price)/Maturity}] / [(FV+Price)/2]

$2,000 = $8,000/(1+i)⁵

(1+i)⁵ = $8,000/$2,000

(1+i) = 41/5

i = 1.319-1

= 31.9

31.9% is the YTM

The yield to maturity (YTM) on a simple loan is 31.9%

Learn more about yield to maturity, here:

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