ACCT 001A Lecture Notes - Lecture 8: Effective Interest Rate, Cash Flow, Amortization Schedule
19 May 2020
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Bank b offers 15. 5% compounded quarterly: if you want to compare alternative investments with different compounding periods you need to compute the ear for each, ear is the annual equivalent of the period rate. Loan types: pure discount loans: borrower gets money today and repays a single lump sum (principal. Pure discount loans: example: treasury bills (t-bills). Interest-only loans: this cash flow stream is similar to the cash flows on corporate and treasury bonds. Amortized loans with fixed payments: basic idea: each payment covers the interest expense plus reduces principal, consider a 4-year loan with annual payments. The interest rate is 8% and the principal is. ,000: what is the annual payment, crucial: by the 4th year the principal must be gone, n = 4, pv = 5000 (this is the money you get today) I/yr = 8: then click pmt = -1,509. 604.
