(c) As shown in column 3, a total of $400 in interest must be earned if the 10% return each year is
based on the initial amount of $1000. However, only $261.88 in interest must be earned if a
10% return on the unrecovered balance is used. There is more of the annual cash fl ow available
to reduce the remaining loan when the rate is applied to the unrecovered balance as in part ( a )
and Table 7–1 . Figure 7–1 illustrates the correct interpretation of rate of return in Table 7–1 .