Five years ago you incurred a 10-year term loan that required annual payments of $1,150 per...

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Five years ago you incurred a 10-year term loan that required annual payments of $1,150 per year. You have made four payments in previous years and the fifth payment is due today. The note holder proposes that you buy back this note today for $4,359. A. Would it pay you to borrow the money at the bank at 13% interest rate and buy back this note (hint: calculate the market value of the loan and compare with the price for which the bank is willing to sell you the note)? B. At what rate of interest would you be indifferent (hint: calculate the yield on the loan based on the bank's price of the note)? Five years ago you incurred a 10-year term loan that required annual payments of $1,150 per year. You have made four payments in previous years and the fifth payment is due today. The note holder proposes that you buy back this note today for $4,359. A. Would it pay you to borrow the money at the bank at 13% interest rate and buy back this note (hint: calculate the market value of the loan and compare with the price for which the bank is willing to sell you the note)? B. At what rate of interest would you be indifferent (hint: calculate the yield on the loan based on the bank's price of the note)?

Answer rating: 100% (QA)

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