1. Explain the relationship between the time value of money and inflation.
2. What are the advantages and disadvantages of a fixed principal and fixed interest loan?
3. A balloon payment of $21,000 on your house is due in 10 years. If you can earn an average of 5 percent per year for the 10-year period, how much will you have to place into an account today to have the $21,000 in 10 years? If you had the present value of the lump sum available in your bank account today could you substitute this for the balloon payment.
4. The face values of a simple interest note and bank discount note are $8,000 each. Assume both notes have 8.75 percent interest rates for 60 days. Calculate the following:
5. The amount of interest charged for each.
6. The maturity value of the simple interest note.
7. The maturity value of the bank discount note.
8. The amount the borrower receives for the simple interest note.
9. The amount the borrower receives for the bank discount note.