A lender lends $12,000, which is to be repaid in annual payments of $2200 for 6 years. Which of the following shows the timeline of the loan from the lender's perspective?

Question

BlackTom AI · Accepted Answer

To analyze the lender’s timeline, we need to map out the cash flows from the lender’s perspective.

- The initial action is a cash outflow of $12,000 at the time of the loan (the principal lent). This occurs at the start, i.e., Year 0. 
- The borrower then makes annual payments of $2,200 for 6 years. From the lender’s viewpoint, these are cash inflows: $2,200 received at the end of Year 1, Year 2, Year 3, Year 4, Year 5, and Year 6.

With this in mind, the correct timeline should reflect: 
- Year 0: -$12,000 (lender gives money)
- Year 1: +$2,200
- Year 2: +$2,200
- Year 3: +$2,200
- Year 4: +$2,200
- Year 5: +$2,200
- Year 6: +$2,200

Now consider the provided options (even though the exact option text isn’t visible in the prompt):
- Misplaced initial inflows or outflows: Any timeline that shows the -$12,000 at Year 1 or later would be incorrect because the principal is disbursed at the loan’s origin, not after the first payment. 
- Incorrectly timed payments: Any option that shows fewer than six payments of $2,200 or payments occurring at times other than Year 1 through Year 6 would be inconsistent with the given terms. 
- Sign conventions: If a timeline uses opposite signs (e.g., treating inflows as negative), that would reflect a convention mismatch rather than a factual error about when payments occur, but it could still be marked wrong depending on the sign convention used in the answer.

If the options were visible, one would compare each timeline against these six cash flow points and identify the one that matches: a single -$12,000 at Year 0, followed by six $2,200 inflows from Year 1 to Year 6. Any deviation from this sequence, such as a -$12,000 appearing in Year 1 or a missing Year 6 payment, would indicate an incorrect timeline.

In summary, the lender’s correct timeline is characterized by an initial outflow of $12,000 at Year 0 and six successive inflows of $2,200 from Year 1 through Year 6. If you provide the exact text of option c (and the other options), I can map each to this pattern and explain precisely why c is the correct timeline and why the others are not.

MCD2170 - T2 - 2025 Key Concept 1 Video quiz

A lender lends $12,000, which is to be repaid in annual payments of $2200 for 6 years. Which of the following shows the timeline of the loan from the lender's perspective?

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