2) The Righton Corporation is taking out a loan of $12,500 at 5% interest (see table below). This interest rate is locked in for the life of the loan. They recognize that if/when they want to take out another loan in the future, the interest rate may change, but they have no reason to expect it to be higher or lower, and they are confident that the bank would extend them another loan on similar terms. They are considering three different possible repayment plans for the current loan. Under Plan 1, they must pay yearly interest of S625 and the entire principal at the end. Plan 2 is an annuity-type plan where they pay equal payments of S1,619 every year With Plan 3, they pay a balloon payment of principal plus all accumulated interest in year 10. Show how the bank calculates the balloon payment of 20,361 Year PlanI 12,500 12,500 -625 -625 -625 -625 -625 -625 -625 Plan2 Plan3 12,500 1,619 1,619 1,619 1,619 1,619 1,619 1,619 1,619 1,619 13,125 1,619 payment sum: -18,750 16,188 -625 20,361 20,361 NPV: What are the NPVs of the payment streams for the three plans? Can you use NPV to recommend one plan over the others? Why should one plan be preferred over another? Suppose that the company agreed on paying the 5% rate and signed a contract locking in that rate, and then the very next day the market interest rate dropped to 4%. Under which plan would the bank be happiest? Under which plan would the Righton Corporation be happiest? Why? How large would the gain or loss in NPV be for each plan