A bank offers you a $1M loan with an IRR of 5% (i.e. the bank makes a

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A bank offers you a $1M loan with an IRR of 5% (i.e. the bank makes a return of 5% on the loan; note that 5% is not the rate of interest payments). The bank requires you to repay the loan in 5 equal annual installments, starting next year.

(a) What is the annual payment on the loan that the bank charges? Hint: what is the NPV of this loan from the bank’s perspective?

(b) What is the NPV of the loan if your opportunity cost of capital is 10%?

Related Book For answer-question

Income Tax Fundamentals 2013

ISBN: 9781285586618

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill

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Posted Date: Sep 27, 2022 03:48 AM

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A bank offers you a $1M loan with an IRR of 5% (i.e. the bank makes a

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Income Tax Fundamentals 2013

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