QUESTION $3($a$)$

$[7$ marks$]$

A company can choose between a bullet loan and an equivalent amortized loan with a value of $$5,750,000.$ Calculate the repayment cash flows for a five$-$year loan with a $3\mathrm{.}25\%$ pa fixed interest rate bullet loan and the equivalent amortized loan.

$\backslash$table$[[$Year$,$Bullet loan repayments,Amortized loan repayments$],[,3\mathrm{.}25\%,4\mathrm{.}00\%,3\mathrm{.}25\%,4\mathrm{.}00\%,],[1,?,,?,,],[2,?,,?,,],[3,?,,?,,],[4,?,,?,,],[5,?,,?,,]]$

Based on your calculations for the bullet loan repayments and amortized loan repayments, explain why the bank recommends that the amortized loan be taken. If interest rates increased to a $4\mathrm{.}00\%$ fixed rate, would that alter the bank's recommendation? If interest rates were expected to continue to rise would the bank preference change?