Question

Discount loan (interest and principal at maturity). Chuck Ponzi has talked an elderly woman into loaning him $10,000 for a new business venture. She has, however, successfully passed a finance class and requires Chuck to sign a binding contract on repayment of the $10,000 with an annual interest rate of 10% over the next 15 years. Determine the cash flow to the woman under a discount loan, in which Ponzi will have a lump-sum payment at the end of the contract. What is the amount of payment that the woman will receive at the end of years 1 through 14? $0 (Round to the nearest cent.) What is the amount of payment that the woman will receive at the end of the loan in year 15? $ (Round to the nearest cent.)

Answer 1

Answer to Part 1.

Loan Amount = $10,000.00
Rate = 10%
Time = 15 years
Annual Interest = $10,000.00 * 10%
Annual Interest = $1,000.00

The woman will receive $1,000.00 at the end of Years 1 through 14.

Answer to Part 2.

Amount of payment at the end of Year 15 = $10,000.00 + ($1,000.00 * 15)
Amount of payment at the end of Year 15 = $25,000.00