= A bank is in the process of renegotiating a loan. The principal outstanding is $50 million
Question:
= A bank is in the process of renegotiating a loan. The principal outstanding is $50 million and is to be paid back in two installments of $25 million each, plus interest of 8 percent. The new terms will stretch the loan out to five years with only interest payments of 6 percent, no principal payments, for the first three years. The principal will be paid in the last two years in payments of $25 million along with the interest. The cost of funds for the bank is 6 percent for both the old loan and the renegotiated loan. An up-front fee of 1 percent is to be included for the renegotiated loan. What is the present value of the existing loan for the bank? What is the present value of the rescheduled loan for the bank? Is the concessionality positive or negative for the bank?
Step by Step Answer:
Financial Institutions Management A Risk Management Approach
ISBN: 9780077211332
6th Edition
Authors: Anthony Saunders, Marcia Cornett