A loan is negotiated with the lender agreeing to accept $8, 000 after 1 year, $9,...
A loan is negotiated with the lender agreeing to accept $8, 000 after 1 year, $9, 000 after 2 years, and $20, 000 after four years in full repayment of the loan. The loan is renegotiated so that the borrower makes a single payment of $37, 000 at time T and this results in the same total present value of payments when calculated using an annual effective rate of 7.13%. Find T.
Homework Answers
Present value of !st loan at rate = 7.13% annually
PV = 8000/1.0713 + 9000/1.0713^2 + 20000/1.0713^4 = $30493.42
if instead a single payment of $37, 000 at time T, PV of this loan =
PV = 37000/1.0713^T
or same PV of both the loan structure,
37000/1.0713^T = 30493.42
So, T = 2.81 years
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