Interest Rates - Application: Discount Rates and Loans
3 important questions on Interest Rates - Application: Discount Rates and Loans
When you want to take a loan, that is receive cash now in exchange for promised future payments, there is an equality that must hold in order for the bank to accept your loan. What equality is this?
The present value of the promised future payments discounted at the loan's interest rate must equal the amount of cash borrowed
How do you calculate the amount owed on an amortizing loan at any point of time?
You take the present value of the future obligations
What do you use as a discount rate when determining the PV of the remaining loan payments on an amortizing loan?
The interest rate of the loan
Try our study magic for free
a PDF, study it super fast
- No sign up, email or credit card needed!
- AI makes unlimited flashcards
- Get unlimited quizzes and tests
- Ask AI anything
Create a notebook
- No sign up, email or credit card needed!
- Have and keep perfect overview
- Make flashcards, notes and mind maps
- Review, test and score!
The question on the page originate from the summary of the following study material:
- A unique study and practice tool
- Never study anything twice again
- Get the grades you hope for
- 100% sure, 100% understanding
Remember faster, study better. Scientifically proven.
