QUESTION 3(a) 7 marks A company has a choice between a bullet loan and an equivalent amortized loan with a value of $3,750,000 Calculate the repayment cash flows for a five year loan with a 3 05 pa fixed interest rate bullet loan and the equivalent amortized loan Year Bullet loan repayments Amortized loan repayments 3 05 3 80 3 05 3 80 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 3 80 fixed rate, would that alter the bank's recommendation

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Question: QUESTION 3(a) [ 7 marks] A company has a choice between a bullet loan and an equivalent amortized loan with a value of $3,750,000. Calculate

QUESTION 3(a) [ 7 marks]

A company has a choice between a bullet loan and an equivalent amortized loan with a value of $3,750,000. Calculate the repayment cash flows for a five-year loan with a 3.05% pa fixed interest rate bullet loan and the equivalent amortized loan.

Year	Bullet loan repayments	Amortized loan repayments
	3.05%	3.80%	3.05%	3.80%
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 3.80% fixed rate, would that alter the bank's recommendation?

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