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What is the duration of the loan under both methods of

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You can obtain a loan for $100,000 at a rate of 10 percent for two years. You have a choice of paying the principal at the end of the second year or amortizing the loan that is, paying interest (10 percent) and principal in equal payments each year. The loan is priced at par.

a. What is the duration of the loan under both methods of payment?

b. Explain the difference in the two results.

Reference no: EM13317542

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