Cindy is taking out a loan today. The cash amount that she will receive today is equal to the present value of the lump sum payment which she will be required to pay 2 years from today. Which type of loan is this?

Question

Quizplus · Accepted Answer

This is a pure discount loan, because the cash amount that Cindy will receive today is equal to the present value of a lump sum payment due in the future. There are no interest payments or principal payments involved, as with amortized or interest-only loans. Likewise, there is no compounding of interest, which would make it a compound loan.

Cindy Is Taking Out a Loan Today