4.5 Three Loan Payment Methods
At this point, let's pause and synthesize some basic information on the time value of money. When you borrow money, there are three different ways to repay the loan:
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With a discount loan, you can pay off the principal (the original loan amount that you borrowed) and all the interest (the amount that the lender charges you for borrowing the money) at one time at the maturity date of the loan. The discount loan is the payment method of the U.S. government on Treasury bills.
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With an interest-only loan, you can make interest payments as you go and then pay the principal and final interest payment at the maturity date. The interest-only loan is the payment method of the bond market.
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With an amortized loan, you can pay ...
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