Question

Interest-only loan (regular interest payments each year 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 7% over the next 10 years. Determine the cash flow to the woman under an interest-only loan, in which Ponzi will pay the annual interest expense each year and pay the principal back at the end of the contract. What is the amount of payment that the woman will receive at the end of years 1 through 9? (Round to the nearest dollar.)

Answer 1

Answer påge 01 . From the problem Under the terms of the contract, it is mentioned that loan is interest only and hence only interest expens will be paid by ponzi to the woman during the tenure & loan which is 10 years. 1 The amount of interest that will be paid by ponzi every year and will be received by woman every year = 700. (10000x 7•6) walking Annual interest expense = loan amount x Annual simple interest scate working = 10,000 X 71 = 400 So, the elderly woman gets too per year for 10 years and the principal payment of 10700 at the end of 10 years = (10,000+ 700) Therefore, amount of payment $[10700] = 10700