1. Rose could probably borrow the money to purchase the shares outright because the shares would serve as collateral and dividends would cover a good part of the loan payments. The interest rate is 7%, and the loan will be amortized with a series of equal payments. What are the annual payments if the bank amortizes the loan over five, ten, or twenty years?
2. Repeat question 1, but assume that payments are made at the beginning of each year.
3. Complete the amortization schedule for a $10,000,000 loan at 7% with five equal, end-of-year payments.
4. Sam has offered to finance the purchase with a 10-year, interest-only loan. How much is Rose’s annual payment? Describe the pattern of payments over the ten years.
5. Assume that Rose accepts Sam’s offer to finance the purchase with a ten year, interest-only loan. If Sam can reinvest the interest payments at a rate of 7% per year, how much money will he have at the end of the tenth year?

  • CreatedMay 08, 2014
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