How much will it cost to borrow money?
Most debt requires periodic payments of principal and interest. Consequently, debt often involves computations of annuities, particularly the present value of annuities. Determining the payment amount and the total cost of borrowing depends on the interest rate and the number of periods over which the debt is repaid. As a borrower, you may be able to negotiate the number of periods over which debt is repaid. For example, you may be able to repay a loan over five or ten years. Often, agreeing to a shorter borrowing period means getting a loan with a lower interest rate. Why would that be true? What factors would encourage a lender to require a higher or lower rate of interest from a borrower? What kinds of information would a lender look for in the financial statements of a borrower like Mom’s Cookie Company? Why? What financial information could help a borrower bargain for a lower rate or more money?