Suppose you borrowed $95,000 at a rate of 7.8% and must repay it in 5 equal installments at the end of each of the next 5 years. By how much would you reduce the amount you owe in the first year? a. $16,258.08

Suppose you borrowed $95,000 at a rate of 7.8% and must repay it in 5 equal installments at the end of each of the next 5 years. By how much would you reduce the amount you owe in the first year? a. $16,258.08

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

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

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Suppose you borrowed $95,000 at a rate of 7.8% and must repay it in 5 equal
installments at the end of each of the next 5 years. By how much would you reduce the
amount you owe in the first year?
a. $16,258.08
b. $14,545.54
c. $23,668.08
d. $19,000.00
e. $21,955.54

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