Exercise 3-advanced:

A company comes to you for $10,000 loan and with the expected promissory to pay as follow:

Year

1

2

3

4

5

6

7

8

9

10

Pay back

300

308

315

350

380

396

400

401

325

325

The initial loan will be paid back at the end of year 10^th. Interest rate for 10-year government bond is 5,1%.

1. Do you accept this proposal?

2. If negotiation, do you think is there any point to do? Suppose that the pay back plan is fixed but you can terminate the loan anytime you want?

1. Choose the way to solve: Present value approach or Future value approach.