Chapter 9 from Financial institution management question#11

- you can obtain a loan of $100,000 at a rate of 10% for two years. you have two choices of paying

i) paying the interest (10%) each year and the total principal at the end of the second year or.

ii) amortizing the loan, that is, paying interest (10%) and principal in equal payments each year. the loan is priced per year.

a) what is the duration of the loan under both methods of payments?

b) explain the difference in the two results?