Question
You have decided to purchase a small tract of land for building a new home on the outskirts of town. You have some money available
You have decided to purchase a small tract of land for building a new home on the outskirts of town. You have some money available but need a loan of $18,000 to make the purchase. The land will be owner-financed over 4 years with end-of-year payments. The interest rate is 9%.
For each of the payback methods given, determine the present worth of the loan payments made by the borrower, using TVOM rates of 5%, 9%, and 13%
Method 1: Pay the accumulated interest at the end of each interest period and repay the principal at the end of the loan period.
Method 2: Make equal principal payments, plus interest on the unpaid balance at the end of the period.
Method 3: Make equal end-of-period payments.
Method 4: Make a single payment of principal and interest at the end of the loan period.
Method 5: Pay $3,000 principal at the end of the first year, then $4,000, $5,000, and $6,000 at the end of years 2, 3, 4, plus the accumulated interest at the end of each interest period.
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