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Developed Investments Enterprises (DIE) is trying to secure a $5,000,000 loan to develop a piece of property in downtown Amherst. Several banks have offered financing
- Developed Investments Enterprises (DIE) is trying to secure a $5,000,000 loan to develop a piece of property in downtown Amherst. Several banks have offered financing for the project. The options are:
- A 10-year loan with annual payments of $660,000.
- A 10-year interest only loan at 5% per year.
- A 10-year discount loan with a single payment of $8,790,000 being due after 10 years.
Which loan should DIEs CFO accept and why?
2. State of Massachusetts has a new lottery. The winner will have the option of picking among these prizes. If deposit and loan rates at local banks are 4.5% per year, which prize should you select and why? Which one is better and why?
- $1,000,000 Cash today.
- $46,000 a year forever starting a year from now.
- $26,000 a year forever starting a year from now with payments growing at the rate of inflation, which is expected to be 2% per year.
- $125,000 a year for 10 years starting a year from now.
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