compare and contrast different loan terms, discount loans, interest-only loans, and amortized loans.

Expert Solution

Discount loans: A discount loan is a special type of the loan, where the borrower promise to pay a fixed sum of money at fixed time in exchange for borrowing today. In the discount loan process lender calculates the discounted value of loan amount with fixed interest rate for loan tenure. The lender will only pay the loan amount after deduction of interest. However, the borrower has to pay back the whole loan amount at end of loan term.

Interest-only loans: An interest-only loan is a special type loan, in the arrangement the borrower pays interest on loan payment to the lender with specify interest rate till the time of loan, but the principal loan amount will remain unchanged. Borrower will pay back the principle amount at the end.

Amortized loans: This is very common form of loan, the loan repayment will be equally distributed over time of loan. The loan principal balance will be amortized over the time. The borrower will pay back the loan in equal installment , the installment will be calculated as combination principle and Interest rate. Mortgages are typically amortized loan.

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