Question: You are considering taking out a loan to invest in a promising nanotechnology firm, which is designing miniaturized robots to repair micro-fractures in the shin bones of marathon runners. In exchange for one common share, the company is asking for an investment of $125,000. Your bank has offered you a loan of $125,000 at a quoted rate of 11.55%, compounded quarterly. The loan will be amortized over a 10-year term.
a. How much is the quarterly payment?
b. Assuming you hold the loan to maturity; how much interest will you have paid over the life of the loan?
c. At the end of three years, you have inherited a small fortune from a long-lost relative. You have decided to pay out the loan. What is the outstanding principal?