Discounted Cash flow Valuation - LOAN TYPES AND LOAN AMORTIZATION
4 important questions on Discounted Cash flow Valuation - LOAN TYPES AND LOAN AMORTIZATION
There are 3 basic types of loans what are these?
-interest-only loans
-amortized loans
Working with these loans is a very straightforward application of the present value principles that we have already developed.
Explain 1 of the 3 loans: Pure Discount loans
A one-year, 10 per cent pure discount loan, for example, would require the borrower to repay £1.10 in one year for every pound borrowed today
Explain 1 of the 3 loans: Intrest-only loans:
Notice that if there is just one period, a pure discount loan and an interest-only loan are the same thing.
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Explain 1 of the 3 loans: Amprtized loans:
With a pure discount or interest-only loan the principal is repaid all at once.
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