Question: I am having a hard time discerning this question about duration. I would really appreciate some help! The problem is attached. Thank you! Suppose you

I am having a hard time discerning this question about duration.

I am having a hard time discerning this question about duration. I would really appreciate some help! The problem is attached. Thank you!

Suppose you work for a bank as a loan ofcer. You are considering making a loan to a customer so that she can buy a brand new car for $25,000 with a 5.1% APR. You plan to make the loan a 5-year loan, but you are trying to decide between two loan structures. In the rst plan, you will structure the loan as a simple annuity, and in the second plan you will provide an amortized loan. 1. Create two tables according to two different loan payment plans. Each table should include each payment period, each loan payment, the fraction of each payment going towards principle and interest, and the resulting principle balance after each payment. 2. Calculate the duration of each loan. I. Duration of annuity loan 11. Duration of amortized low 3. You now have to go to your manager and propose one of the loan plans. Which one would you propose and why? Be thorough in your explanation

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