A firm borrows $100,000 under a 3 year agreement at 12% interest. The loan requires annual payments of $25,000 at the end of years 1 and 2. What is the payment required at the end of year three with this balloon loan? a) $33,333 b) $81,133 c) $72,440 d) $131,133

A firm borrows $100,000 under a 3 year agreement at 12% interest. The loan requires annual payments of $25,000 at the end of years 1 and 2. What is the payment required at the end of year three with this balloon loan? a) $33,333 b) $81,133 c) $72,440 d) $131,133

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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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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a) $33,333

b) $81,133

c) $72,440

d) $131,133

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