A businessman wishes to borrow an amount of $3 million for a term of 5 years....

A businessman wishes to borrow an amount of $3 million for a term of 5 years. The agreed rate of interest is 5% per annum effective for the first 3 years, and 7% per annum effective thereafter. Repayment on the loan are made annually in arrears.

a) Find the amount of the level annual repayment

b) Draw up the loan schedule for the full five -year period

c) Calculate what percentage of the loan has been repaid by the end of year 3

d) Without doing any further calculation, explain how this percentage figure would alter if the rate of interest had instead being 7% for the first three years and 5% thereafter.

Expert Solution

jeff jeffy answered 1 week ago

RBC wishes to borrow $2.1 million for 8 years. The company APPE offers to lend the...

RBC wishes to borrow $2.1 million for 8 years. The company APPE offers to lend the money at j2= 9% if it is amortized semi-annually. Another company ECHO offers it at j2= 7.6% only if the interest is paid semi-annually and the principal is returned at the end of 8 years. If you take ECHO’s offer a sinking fund is established by semi-annual deposits at j2= 3.9%. Which company should AB InBev take the offer from and how much can...

AB InBev wishes to borrow $2.1 million for 8 years. The company LIME offers to lend...

AB InBev wishes to borrow $2.1 million for 8 years. The company LIME offers to lend the money at j2 = 9% if it is amortized semi-annually. Another company OCHO offers it at j2 = 7.6% only if the interest is paid semi-annually and the principal is returned at the end of 8 years. If you take OCHO’s offer a sinking fund is establish by semi-annual deposits at j2 = 3.9%. Which company should AB InBev take the offer from...

A government wishes to borrow £1 million. It issues a one-year bond at a price of...

A government wishes to borrow £1 million. It issues a one-year bond at a price of £950,000 at a fixed rate of interest of 5%. Suppose in investors become concerned about a possible default, causing the bond price to fall to £930,000. Calculate the bond yield before and after the fall in the bond price. How will this affect the interest rates that companies and households pay on their debts? What can governments do to prevent a debt default?

john wishes to pay $1000 a year for 3 years, starting 5 years from today. interest...

john wishes to pay $1000 a year for 3 years, starting 5 years from today. interest rates are forecast at 2% compounded monthly over the next two years and 4% compounded monthly there after. how much must he set aside today?

Citibank need to borrow $1 million for 6 months starting in 3 years. Citibank is concerned about...

Citibank need to borrow $1 million for 6 months starting in 3 years. Citibank is concerned about the interest rate would like to lock in the interest rate it pays by going long an FRA with Bank of America. The FRA specifies that Citibank will borrow at a fixed rate of 0.03 for 6 months on $1 million in 3 years. If the 6 months LIBOR rate proves to be 0.01. Then to settle the FRA, what is the cash flow to...

Your company is planning to borrow $3 million on a 5-year, 10%, annual payment, fully amortized...

Your company is planning to borrow $3 million on a 5-year, 10%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Do not round intermediate calculations. Round your answer to two decimal places

Your company forecasts that 3 months after today you will need to borrow $5 million dollars...

Your company forecasts that 3 months after today you will need to borrow $5 million dollars for 3-months. You also know a Eurodollar futures contract that expires in 3 months (June) is trading at 98.08. You decide to use this Eurodollar futures contract to hedge your risk. If the actual LIBOR rate on the day when you borrow money, which is also the day that your Eurodollar futures position expires, is 1.3%. (1) Indicate how you will use the Eurodollar...

Your company is planning to borrow $3 million on a 5-year, 13%, annual payment, fully amortized...

Your company is planning to borrow $3 million on a 5-year, 13%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Do not round intermediate calculations. Round your answer to two decimal places.

Prajwal is an Indian businessman and he wanted to borrow Rs 750,000 for an urgent investment...

Prajwal is an Indian businessman and he wanted to borrow Rs 750,000 for an urgent investment need from a friend who lives in Australia. His friend agreed to send the above amount of money in Indian rupees and said that interest will not be charged for the loan. However, Prajwal promised to repay the loan in Australian dollars after six-months with a forward currency rate of Rs55/$. I. What is the amount of money in dollars that his friend needs...

Vesta Ventures wishes to borrow $10 million for one year. A bank offers an interest-only loan...

Vesta Ventures wishes to borrow $10 million for one year. A bank offers an interest-only loan with quarterly interest payments at a floating rate of 90-day Libor plus 90 bps and full principal repayment due at the end of the one-year term of the loan. Vesta also enters a one-year, quarterly payment interest rate swap as the fixed rate payer to hedge interest rate risk. The swap has a notional principal of $10 million, the floating rate is Libor, and...

Question