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A bank has a basket of three-year loans with a value of $ 5 million that pay annual interest of $200,000 per annum. Interest payments

A bank has a basket of three-year loans with a value of $ 5 million that pay annual interest of $200,000 per annum. Interest payments are conducted every year but the total principals of the loans are due at the end of the third year.

The bank is willing to sell these loans without recourse at an interest rate of 3.5 percent. What price should it receive for these loans? ( 4 marks)

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