Asked by Santosh Poudel on Jul 21, 2024
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A pure discount loan is defined as a loan where a borrower receives money today in exchange for:
A) Annual interest payments and the repayment of the principal at the end of the loan period.
B) Increasing loan payments over the life of the loan.
C) Equal loan payments over the life of the loan.
D) Equal loan payments for a period of time followed by one large payment at the end of the loan term.
E) One lump sum payment at the end of the loan term.
Pure Discount Loan
A loan where the borrower receives a sum of money upfront and repays a higher amount at the end of the loan period, effectively paying interest by the difference.
Lump Sum Payment
An isolated financial disbursement occurring once, instead of being divided into multiple payments over a duration.
Annual Interest Payments
Periodic payments made to bondholders, typically annually, that represent the interest earned on the investment.
- Pinpoint and outline the various classifications of loans, like amortized, balloon, and pure discount loans.
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Learning Objectives
- Pinpoint and outline the various classifications of loans, like amortized, balloon, and pure discount loans.
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