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Negotiating the Rate.  A sovereign borrower is considering a 100 million loan for a 4​-year maturity. It will be an amor...

Negotiating the Rate.  A sovereign borrower is considering a 100 million loan for a 4​-year

maturity. It will be an amortizing​ loan, meaning that the interest and principal payments will​ total, annually, to a constant amount over the maturity of the loan. There​ is, however, a debate over the appropriate interest rate. The borrower believes the appropriate rate for its current credit standing in the market today is 10​%, but a number of international banks with which it is negotiating are arguing that is most likely 14%, at the minimum 10​%. What impact do these different interest rates have on the prospective annual​ payments?

  1. The annual payment, if the interest was set at 10%?
  2. The annual payment, if the interest was set at 14%
  3. The difference in annual payment?
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Answer #1

Given Loan Period Rate 1 Rate 2 100 Million 4 Years 10% 14% Solution We know that formula for annual payment is Annual Paymen

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