Question

Discount loan (interest and principal at maturity). Chuck Ponzi has talked an elderly woman into loaning him $30,000 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 $30,000 with an annual interest rate of 1 1% over the next 20 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 197 Round to the nearest cent) What is the amount of payment that the woman will receive at the end of the loan in year 20? (Round to the nearest cent)

Answer 1

In the discount loan, we have to calculate payment per period, which can be calculated using the excel function PMT,

=PMT(rate,nper,pv,fv)

=PMT(11%/12,240,0,30000)

=$34.66

In the discount loan, all the payments are of equal instalments, hence for both the questions, the answer will be same as $34.66