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Part 1$4,500 at 18% for 5 years Monthly Payment- $142.50 The amount of interest- $4,050.00 True interest rate cost of this loan 28.88% or 29%

Part 1$4,500 at 18% for 5 years

Monthly Payment- $142.50

The amount of interest- $4,050.00

True interest rate cost of this loan 28.88% or 29%

Part 2:Same loan at a compound rate

Monthly payment be- $114.27

Amount of interest be- $2356.20

Question:Suppose that you are only allowed to make a balloon payment to the principal of the compound interest loan. You have $1,000 to put down at the beginning of year 3.

How many payments will you save?

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