1.A $20 million loan outstanding to the Nigerian government is currently in arrears with City Bank. After extensive negotiations, City Bank agrees to reduce the interest rate from 10 per cent to 6 per cent and to lengthen the maturity of the loan to 10 years from the present five years remaining to maturity. The principal of the loan is to be paid at maturity. There will be no grace period and the first interest payment is expected at the end of the year.

If the cost of funds is 5 per cent for the bank, what is the present value of the loan prior to the rescheduling?

What is the present value of the rescheduled loan to the bank?

What is the concessionality of the rescheduled loan if the cost of funds remains at 5 per cent and an upfront fee of 5 per cent is charged?

What upfront fee should the bank charge to make the concessionality equal zero? LO 12.6