If you borrow $100,000 at an annual rate of 8.00% for a 10-year period and repay the interest of $8,000 at the end of each year prior to maturity and the final payment of $108,000 at the end of 10 years,then you have just repaid what type of loan?
A)Amortized loan
B)Interest-only loan
C)Discount loan
D)Compound loan

Question

Quizplus · Accepted Answer

This loan is an interest-only loan because the borrower is only paying the interest ($8,000) each year and then repaying the entire principal ($100,000) at the end of the 10-year period. There is no amortization of the loan over time, meaning the principal balance stays the same throughout the life of the loan. A discount loan involves the borrower receiving less than the face value of the loan upfront and repaying the full amount at maturity. A compound loan has interest that is added to the principal over time.

If You Borrow $100,000 at an Annual Rate of 8