To finance a new project, you have taken out a loan of size SL. On this...

 

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To finance a new project, you have taken out a loan of size SL. On this loan, you will only pay interest on the loan for 10 years, then at the end of 10 years, you will repay the entire loan with one single payment (equal to SL). The interest rate on the loan is i% per annum (effective). The interest must be paid every 2 months, with the interest payment equal to the interest earned on the loan over the previous 2 month period. The project earns $Y at the end of each month, for 10 years. The reinvestment rate on earnings from the project=j% per annum (effective). (a) Derive an expression (in terms of Y, j, L and i), that gives the accumulated value of your financial position after 10 years, immediately after the loan of SL has been repaid. (8 marks) To finance a new project, you have taken out a loan of size SL. On this loan, you will only pay interest on the loan for 10 years, then at the end of 10 years, you will repay the entire loan with one single payment (equal to SL). The interest rate on the loan is i% per annum (effective). The interest must be paid every 2 months, with the interest payment equal to the interest earned on the loan over the previous 2 month period. The project earns $Y at the end of each month, for 10 years. The reinvestment rate on earnings from the project=j% per annum (effective). (a) Derive an expression (in terms of Y, j, L and i), that gives the accumulated value of your financial position after 10 years, immediately after the loan of SL has been repaid. (8 marks)

Answer rating: 100% (QA)

SOLUTION To derive an expression for the accumulated value of your financial position after 10 years ... View the full answer