Question

Interest-only loan​ (regular interest payments each year and principal at​ maturity). Chuck Ponzi has talked an elderly woman into loaning him ​$35 comma 000 for a new business venture. She​ has, however, successfully passed a finance class and requires Chuck to sign a binding contract on repayment of the ​$35 comma 000 with an annual interest rate of 12​% over the next 15 years. Determine the cash flow to the woman under an​ interest-only loan, in which Ponzi will pay the annual interest expense each year and pay the principal back at the end of the contract. What is the amount of payment that the woman will receive at the end of years 1 through 14​?

Answer 1

Answer:

Ans. From years 1 through 14 she will receive $4,200 and ending year 15 she will receive $39,200 (which is $35,000 of the loan plus $4,200 interest)

Explanation:

Hi, this works just like a bond with a coupon, so first we need to find the amount of interest that she is going to receive every year, at the end of the year, with an annual interest rate of 12%.

$Interests=Loan*(interestRate)$

$Interest=35,000*0.12=4,200$

So, that is what she will receive every year at the end of the year from yr1 through 14. in year 15 she will get $39,200, which is the interest + the principal, in our case, $35,000.

Best of luck.