Start making payments until you graduate from college

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Reference no: EM1322784

Q. To pay for college, you have just taken out a $1000 government loan that makes you pay $126 every year for 25 years. Elucidate however, you do not have to start making payments until you graduate from college 2 years from now. Why is the yield to maturity (Today) necessarily LESS than 12%? (Hint: remember that the yield to maturity (Today) is exactly 12% on a normal (standard) $1000 fixed payment loan, in which you pay $126 every year for 25years starting next year).

Reference no: EM1322784

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