Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest...

 

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Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two options for Beda to repay the loan. 1: Interest payments due at year end are paid at year end, and the principal is repaid after 5 years. 2: The loan is repaid by five level payments over the 5 years. Wendy can only reinvest the repayments of Beda at 7% per annum. (a) Calculate the yield rate of Wendy under Option 1. (b) Calculate the yield rate of Wendy under Option 2. Explain why the answer obtained is smaller than that in (a). Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two options for Beda to repay the loan. 1: Interest payments due at year end are paid at year end, and the principal is repaid after 5 years. 2: The loan is repaid by five level payments over the 5 years. Wendy can only reinvest the repayments of Beda at 7% per annum. (a) Calculate the yield rate of Wendy under Option 1. (b) Calculate the yield rate of Wendy under Option 2. Explain why the answer obtained is smaller than that in (a). Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two options for Beda to repay the loan. 1: Interest payments due at year end are paid at year end, and the principal is repaid after 5 years. 2: The loan is repaid by five level payments over the 5 years. Wendy can only reinvest the repayments of Beda at 7% per annum. (a) Calculate the yield rate of Wendy under Option 1. (b) Calculate the yield rate of Wendy under Option 2. Explain why the answer obtained is smaller than that in (a). Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two options for Beda to repay the loan. 1: Interest payments due at year end are paid at year end, and the principal is repaid after 5 years. 2: The loan is repaid by five level payments over the 5 years. Wendy can only reinvest the repayments of Beda at 7% per annum. (a) Calculate the yield rate of Wendy under Option 1. (b) Calculate the yield rate of Wendy under Option 2. Explain why the answer obtained is smaller than that in (a). Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two options for Beda to repay the loan. 1: Interest payments due at year end are paid at year end, and the principal is repaid after 5 years. 2: The loan is repaid by five level payments over the 5 years. Wendy can only reinvest the repayments of Beda at 7% per annum. (a) Calculate the yield rate of Wendy under Option 1. (b) Calculate the yield rate of Wendy under Option 2. Explain why the answer obtained is smaller than that in (a). Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two options for Beda to repay the loan. 1: Interest payments due at year end are paid at year end, and the principal is repaid after 5 years. 2: The loan is repaid by five level payments over the 5 years. Wendy can only reinvest the repayments of Beda at 7% per annum. (a) Calculate the yield rate of Wendy under Option 1. (b) Calculate the yield rate of Wendy under Option 2. Explain why the answer obtained is smaller than that in (a).

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