4. Liam borrows $10,000 at an effective periodic rate of i. The loan will be paid back with 10 payments at the end of each period. Each payment will consist of $1,000 plus the interest owed for that period. This means the principal in each payment is $1,000. For example, the first payment will be $1,000+ $10, 000i. Show that the present value of these payments at the given interest ratei is $10,000. Hint: Try to figure out what the pattern the payments follow. Follow up hint: You may recognize one of the pieces as a decreasing annuity.
4. Liam borrows $10,000 at an effective periodic rate of i. The loan will be paid back with 10 payments at the end of each period. Each payment will consist of $1,000 plus the interest owed for that period. This means the principal in each payment is $1,000. For example, the first payment will be $1,000+ $10, 000i. Show that the present value of these payments at the given interest ratei is $10,000. Hint: Try to figure out what the pattern the payments follow. Follow up hint: You may recognize one of the pieces as a decreasing annuity.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:4. Liam borrows $10,000 at an effective periodic rate of i. The loan will be paid back with 10 payments
at the end of each period. Each payment will consist of $1,000 plus the interest owed for that
period. This means the principal in each payment is $1,000. For example, the first payment will
be $1,000+ $10, 000i. Show that the present value of these payments at the given interest ratei is
$10,000. Hint: Try to figure out what the pattern the payments follow. Follow up hint: You may
recognize one of the pieces as a decreasing annuity.
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