Due to the COVID crisis, UNM is negotiating a contract to borrow $300,000 to be repaid...

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Due to the COVID crisis, UNM is negotiating a contract to borrow $300,000 to be repaid in a lump sum at the end of nine years. Interest payments will be made on the loan at the end of each year. UNM is considering the following three financing arrangements: Option 1: UNM can borrow the money using a fixed-rate loan (FRL) that requires interest payments of 9% per year. Option 2: UNM can borrow the money using an adjustable-rate loan (ARL) that requires an interest payment of 6% at the end of each of the first five years. At the beginning of the sixth year, the interest rate on the loan could change to 7%, 9%, or 11% with probabilities of 0.1, 0.25, and 0.65 respectively. Option 3: UNM can borrow the money using an ARL that requires an interest payment of 4% at the end of each of the first three years. At the beginning of the fourth year, the interest rate on the loan could change to 6%, 8%, or 20% with probabilities of 0.05, 0.30, and 0.65, respectively. At the beginning of the seventh year, the interest rate could decrease by 1 percentage point with a probability of 0.1, increase by 1 percentage point with a probability of 0.2, or increase by 3 percentage points with a probability of 0.7. Create a decision tree for this problem, computing the total interest paid under each possible scenario. Do nothing is not an option in this problem. UNM has to borrow money. What is the payoff at the terminal node if UNM chooses Option 1? ⒸA.-153,000 B. -198,000 C.-174,000 D.-243,000 QUESTION 8 What is the payoff at the terminal node if UNM chooses Option 2 and the interest rate change to 9% at the beginning of the sixth year? A.-198,000 B.-174,000 ⒸC.-243,000 OD.-222,000 QUESTION 9 What is the payoff at the terminal node if UNM chooses Option 3 and the interest rate change to 6% at the beginning of the fourth year and decrease by 1% at the beginning of the seventh year? ⒸA. -198,000 ⒸB.-174,000 ⒸC.-135,000 OD.-222,000 QUESTION 10 Which option should UNM choose to minimize the expected interest paid? A. Option 1 OB. Option 2 OC. Option 3 Due to the COVID crisis, UNM is negotiating a contract to borrow $300,000 to be repaid in a lump sum at the end of nine years. Interest payments will be made on the loan at the end of each year. UNM is considering the following three financing arrangements: Option 1: UNM can borrow the money using a fixed-rate loan (FRL) that requires interest payments of 9% per year. Option 2: UNM can borrow the money using an adjustable-rate loan (ARL) that requires an interest payment of 6% at the end of each of the first five years. At the beginning of the sixth year, the interest rate on the loan could change to 7%, 9%, or 11% with probabilities of 0.1, 0.25, and 0.65 respectively. Option 3: UNM can borrow the money using an ARL that requires an interest payment of 4% at the end of each of the first three years. At the beginning of the fourth year, the interest rate on the loan could change to 6%, 8%, or 20% with probabilities of 0.05, 0.30, and 0.65, respectively. At the beginning of the seventh year, the interest rate could decrease by 1 percentage point with a probability of 0.1, increase by 1 percentage point with a probability of 0.2, or increase by 3 percentage points with a probability of 0.7. Create a decision tree for this problem, computing the total interest paid under each possible scenario. Do nothing is not an option in this problem. UNM has to borrow money. What is the payoff at the terminal node if UNM chooses Option 1? ⒸA.-153,000 B. -198,000 C.-174,000 D.-243,000 QUESTION 8 What is the payoff at the terminal node if UNM chooses Option 2 and the interest rate change to 9% at the beginning of the sixth year? A.-198,000 B.-174,000 ⒸC.-243,000 OD.-222,000 QUESTION 9 What is the payoff at the terminal node if UNM chooses Option 3 and the interest rate change to 6% at the beginning of the fourth year and decrease by 1% at the beginning of the seventh year? ⒸA. -198,000 ⒸB.-174,000 ⒸC.-135,000 OD.-222,000 QUESTION 10 Which option should UNM choose to minimize the expected interest paid? A. Option 1 OB. Option 2 OC. Option 3

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To create a decision tree and calculate the payoffs at the terminal nodes well go through each optio... View the full answer