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You could obtain a loan of $150,000 at a rate of 5.5 percent for two years. You have a choice of (i) paying the interest
You could obtain a loan of $150,000 at a rate of 5.5 percent for two years. You have a choice of (i) paying the interest (5.5 percent) each year and the total principal at the end of the second year or (ii) amortizing the loan, that is, paying interest (5.5 percent) and principal in equal payments each year. The loan is priced at par.
a. What is the duration of the loan under the first and second method of payment? Do not use excel.
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