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A bank offers you a $1M loan with an IRR of 5% (i.e. the bank makes a return of 5% on the loan; note that
A bank offers you a $1M loan with an IRR of 5% (i.e. the bank makes a return of 5% on the loan; note that 5% is not the rate of interest payments). The bank requires you to repay the loan in 5 equal annual installments, starting next year.
(a) What is the annual payment on the loan that the bank charges? Hint: what is the NPV of this loan from the bank’s perspective?
(b) What is the NPV of the loan if your opportunity cost of capital is 10%?
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
