Assume a bank loan requires an interest payment of $1,200 per year and a principal payment of $20,000 at the end of an eight-year life.

At what amount could this loan be sold to another bank if loans of similar quality carried a 8.5% interest rate? That is, what would be the Present Value of this loan to the nearest dollar?

$ _________________ Now, if interest rates on other similar quality loans are 10%, what would be the PV of his loan to the nearest dollar?

$ _________________ What would be the PV of this loan if the interest rate is 6.5% on similar quality loans to the nearest dollar?

$ _________________