personal finance 7th edition

CHAPTER 7

You are given the opportunity to borrow $10,000 for 36 months at 12% ANNUAL interest with two repayment options:

Pay interest only (no principal) at the end of each month with full repayment of principal (the amount borrowed) at the end of the 36 months, or

Make 36 monthly installment payments of interest and principal at the end of each month (you may use Appendix E to calculate this figure. Please note that Appendix E computes the payments assuming only a $1,000 loan so multiply the payment by 10).

For each scenario what will be your monthly payment in years 1 & 2?

For each scenario what would be your total payments of principal and interest over the 36 month term?

Which option would you recommend? Why?

You are given the opportunity to borrow a $10,000 installment loan at 5% interest for 36 months or seventy two months. Using Appendix E list one advantage associated with each repayment option.

It is often said that with a fixed rate loan the lender bears the interest rate risk and with a variable rate loan the borrower bears the interest rate risk. Please explain this statement.

Can you give me at least one example of a popular unsecured consumer loan and a popular secured loan? Which is riskier and why?