General Dynamics obtained a 0.5%-per-month $100 million loan to be repaid over a 5-year period. (a) What is the difference in the amount of interest in the second month’s payment if interest is charged on the original principal of the loan rather than on the unrecovered balance? (b) As months pass, for which basis—principal only or unrecovered balance—does the monthly interest decrease in amount?

General Dynamics obtained a 0.5%-per-month $100 million loan to be repaid over a 5-year period. (a) What is the difference in the amount of interest in the second month’s payment if interest is charged on the original principal of the loan rather than on the unrecovered balance? (b) As months pass, for which basis—principal only or unrecovered balance—does the monthly interest decrease in amount?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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