1Two loans are for the same amount at the same interest one is paid off in 10 ye

Question

1Two loans are for the same amount at the same interest one is paid off in 10 years and the other in 25 years. a) Which loan results in more of each payment being rate; directed toward principal? Explain. (b) Which loan results in a lower periodic payment? Explain. 2. When a debt is amortized, which interest rate is better for the borrower, 10% or 6%? Explain. 3. A debt of $8000 is to be amortized with 8 equal semiannual payments. If the interest rate is 12%, compounded semiannually, what is the size of each payment?

Explanation / Answer

1. a) payment made for 25 years result in more payment because interset is applied on the amount for longer period of time so more interest to pay so more payment.

b) payment made for 25 years result in lower periodic payment because amount is divided into 25 parts instead of 10 for 10 years

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