Question
Adam is loaning $5000 to Bert for a period of 2 years. Suppose Bert will repay the loan with a $5000 balloon payment at the
Adam is loaning $5000 to Bert for a period of 2 years. Suppose Bert will repay the loan with a $5000 balloon payment at the end of the 2 years and will pay monthly interest payments each month which will end the month before the $5000 balloon payment.
a. If interest is 6% effective interest, how much will Berts interest payments be to Adam each month?
b. If Adam takes the payments he receives each month from Bert and reinvests them at 3% annual interest compounded monthly, how much will he have in his savings account at the time that Bert pays the balloon payment?
c. What is Adams rate of return on his initial investment of $5000? That is find the yield rate as an effective interest rate.
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