(18 points) Assume that your corporations wants to restructure its debt. Currently, its repayment scheme is summarized in the following table. Year 1 2 3 4 5 Payment $400,000 $300,000 $200,000 $100,000 $100,000 You want to change the repayment scheme so that payments for all coming five years are the same. (a) (6 points) The bank is willing to accept it only if the total value of the existing loan increases by 10%. Annual interest rate is 5%. Under the new repayment scheme, how much is your corporation going to pay each year? (b) (6 points) Assume now that the bank is willing to leave the value of the loan unchanged (so the value of the remaining loan will not be increased by 10%) but wants to increase the frequency of payments to quarterly. What will quarterly payments be? Suppose that effective annual rate is 5%. (c) (6 points) Suppose now that your corporation is only able to pay $80,000 at the end of each year. Assume also that the value of the loan is left unchanged (no 10% increase). Your bank is okay with this annual repayment scheme but wants the first payment to come immediately. How many years will it take to fully repay the loan? Round your answer up to the smallest integer that is larger than your answer. Assume that repayments are made annually, annual rate is 5%, and the total value of loan is the same as implied by the initial repayment scheme. (18 points) Assume that your corporations wants to restructure its debt. Currently, its repayment scheme is summarized in the following table. Year 1 2 3 4 5 Payment $400,000 $300,000 $200,000 $100,000 $100,000 You want to change the repayment scheme so that payments for all coming five years are the same. (a) (6 points) The bank is willing to accept it only if the total value of the existing loan increases by 10%. Annual interest rate is 5%. Under the new repayment scheme, how much is your corporation going to pay each year? (b) (6 points) Assume now that the bank is willing to leave the value of the loan unchanged (so the value of the remaining loan will not be increased by 10%) but wants to increase the frequency of payments to quarterly. What will quarterly payments be? Suppose that effective annual rate is 5%. (c) (6 points) Suppose now that your corporation is only able to pay $80,000 at the end of each year. Assume also that the value of the loan is left unchanged (no 10% increase). Your bank is okay with this annual repayment scheme but wants the first payment to come immediately. How many years will it take to fully repay the loan? Round your answer up to the smallest integer that is larger than your answer. Assume that repayments are made annually, annual rate is 5%, and the total value of loan is the same as implied by the initial repayment scheme
