In: Finance
Q5. The information below provides details of an
off-exchange tailor-made loan obtained by Royal Oceania Cruises...
Q5. The information below provides details of an
off-exchange tailor-made loan obtained by Royal Oceania Cruises to
fund their operations.
- Today is June 30 2019, which is the initiation date of the
loan.
- The Commonwealth Bank is loaning money to Royal Oceania
Cruises.
- The amount borrowed is $50 million.
- The maturity date of the loan is three years.
- A minimum interest payment of $1 million is due in each
financial year. The financial year ends on 30 June each year.
- The nominal interest rate associated with this loan is the
Reserve Bank of Australia cash rate (as at June 30 2019 {1.25%})
plus a margin of 3.75%. This interest rate is compounded monthly
and is fixed from the initiation date.
- Assume the following payments are made by Royal Oceania Cruises
during the term of the loan:
- Monthly repayments of $2 million at the end of each month
beginning on January 31 2020 until April 30 2021 (inclusive).
- May 31 2021: a single payment of $2 million.
- April 30 2022: a single payment of $10 million.
- Given such payments, your job is to determine the outstanding
value of the loan on the maturity date.