Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1,400 which has payments of $500 per year? A) $1,400 = $500/(1 + i) + $500/(1 + i)² + $500/(1 + i)³ B) $1,400 = $500/(1 + i)³ C) i = (1,400-500)/1,400 D) $1,400 = $500/(1 + i) + $500/(1 + i)² + $500(1 + i)³ + 1,400/(1 + i)³

Question

Quizplus · Accepted Answer

The correct equation for determining the yield to maturity of a three-year fixed payment loan involves summing the present values of all payments made over the term of the loan. Each payment is discounted back to its present value using the formula $500/(1 + i)^n, where n is the number of years from the payment to the present. The sum of these present values equals the initial loan amount of $1,400.

Which of the Following Represents the Equation That Would Be