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To pay for college, you have just taken out a $1,000 government loan that has you paying $126 per year for 25 years. However, you
To pay for college, you have just taken out a $1,000 government loan that has you paying $126 per year for 25 years. However, you dont have to start making these payments until you graduate from college two years from now. Why is the yield to maturity necessarily less than 12%, the yield to maturity on a normal $1,000 fixed-payment loan in which you pay $126 per year for 25 years? (Here normal means that you start making payments immediately)
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