Let counter offer to be made to bank to achieve 20% return = X Loan amount = 0.90X Initial Cash outflows = $10,500 + 0.10X Monthly Cash outflows = $2,000 + (0.90X*8%/12) = $2000 + 0.006X Cash outflow at end of year = 0.90X Present value of cash outflows at 1.666% (20/12) monthly rate of interest = $10,500 + 0.10X + [($2,000+0.006X) * cumulative PV factor for 12 periods] + ($0.90X * PV factor at 12th period) =$10,500 + 0.10X + [(2000+0.006X) * 10.7951) + ($0.90X * 0.8201) =$10,500 + 0.10X + $21,590 + 0.0648X + 0.7381X =$32,090 + 0.9029X If we invest ($32090+0.9029X) for 1 year at 20% return then required amount after 1 year = $222,000 ($32,090 + 0.9029X)*1.21939 = $222,000 $39,130 + 1.101X = $222,000 X = $166,094 Therefore we should counter offer to bank for $166,094 for earning 20% return.