Reexamine the loan Dominic was seeking from his parents in the previous example. His parents want to
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Reexamine the loan Dominic was seeking from his parents in the previous example. His parents want to give him an incentive to pay off the loan as quickly as possible. They structure the loan so they charge 7 percent interest the first year and increase the rate 1 percent each year until the loan is paid. How much will Dominic owe if he waits three years to pay off the loan? Say that in the third year he considers whether to pay off the loan or wait one more year. How much more will he pay if he waits one more year?
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