A small business received a five-year $1,000,000 loan at a subsidized rate of 3 percent per year.

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Question:

A small business received a five-year $1,000,000 loan at a subsidized rate of 3 percent per year. The firm will pay 3 percent annual interest payment each year and the principal at the end of five years. If market interest rates on similar loans are 6 percent per year, what is the NPV of the loan? (Ignore taxes.)

A) +$126,371
B) +$348,369
C) −$501,595
D) −$137,391