Assignment No.3: Extending the corporation Mohamed and Abdullah are the owners of ConstructionACE Inc. Both are satisfied by the work Ahmed had done on financial planning. Using Ahmed's predictions, the decided to acquire bigger facility for their corporation. Mohamed and Abdullah have spotted a suitable building and they believe that they can buy it for 29 million AED. Now, the three of them are about to contact Mostafa, the loan manager for the ADCB BANK. They arranged a meeting to discuss the mortgage options available in order to finance the new facility. Mostafa proposed a 25-year mortgage. The loan would be repaid in equal monthly installments. Mostafa also stated that the APR of the loan would be 5.95 %. Abdullah asked if a shorter mortgage loan is available. Mostafa replied that the bank does have a 20-year mortgage available at the same APR. Mohamed inquired about a "smart loan" with another bank when he bought his house. A smart loan works as follows: Every two weeks a mortgage payment is made that is exactly one half of the normal monthly mortgage payment. Mostafa answered that the bank does have smart loans. The APR in this case would be the same as the APR of the traditional loan. Mohamed replied to Mostafa that this is the best option available since it saves interest payments. Mostafa agrees with Mohamed but then he proposed a bullet loan, or balloon payment, would result in the highest interest savings. Mostafa then started explaining to Abdullah the bullet loan. The monthly payment of a bullet loan would be calculated using a 25-year traditional mortgage. There would be a 5-year bullet. This means that the company would make the mortgage payments for the traditional 25-year mortgage for the first five years, but immediately after the company makes the 60" payment, the bullet payment would be due. The bullet payment is the remaining principal of the loan. Ahmed in turn asked how the bullet payment is calculated. Mostafa replied that the remaining principal can be calculated using an amortization table, but it is also the present value of the remaining 20 years of mortgage payments for the 25-year mortgage.