A loan of $4,000 is to be repaid by two payments of $1,500 due in three and eight months. A third unknown payment is due in thirteen months. What should be the size of the third payment if an interest rate of 6% is charged on the loan? Use today as the focal date.

A loan of $4,000 is to be repaid by two payments of $1,500 due in three and eight months. A third unknown payment is due in thirteen months. What should be the size of the third payment if an interest rate of 6% is charged on the loan? Use today as the focal date.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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Concept explainers

Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.

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