Determining the value of any cash flow is the interest rate

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We learned that one of the key variables in determining the value of any cash flow is the interest rate (sometimes referred to as discount rate). However, interest rates may be quoted in more than one way. What do the terms EAR and APR mean? What are the main differences between the two? Under what circumstances could they be similar or vary greatly for the same investment?

The text presents several different categories of loans, including pure discount loans, interest-only loans, amortized loans, and balloon loans. What do each of those categories mean and please provide a real-life example of when each could be an appropriate method of financing.

Reference no: EM13908931

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Determining the value of any cash flow is the interest rate : We learned that one of the key variables in determining the value of any cash flow is the interest rate (sometimes referred to as discount rate). However, interest rates may be quoted in more than one way. What do the terms EAR and APR mean?

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