Maudry is borrowing $10,000 today to fund a new small business. She has an interest-only loan...

Maudry is borrowing $10,000 today to fund a new small business. She has an interest-only loan for the first 12 months, and her first payment will be in one month. (Note: With this interest-only loan, each payment exactly equals the amount of interest accrued in the previous month.) How much will each of the first 12 payments be if the effective annual interest rate is 10%?

A. $83 B. $82 C. $81 D. $80 E. $79

Warren is considering investing in a local business. He can invest $12,000 today and will receive annual payments of $1,000, forever, starting five years from today. What is the profitability index of this investment if his effective annual interest rate is 7%?

A. 1.2 B. 1.1 C. 1.0 D. 0.9 E. 0.8

Expert Solution

1. D. $80

2. D. 0.9

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 13 hours ago

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