Question
our opportunity cost of capital is 10%. A bank offers you a $1M loan with an IRR of 3%. The bank asks you to repay
our opportunity cost of capital is 10%. A bank offers you a $1M loan with an IRR of 3%. The bank asks you to repay the loan in 8 equal annual installments.
(a) What is the annual repayment on the loan? To solve this, ask what annual payment would make the IRR on the loan 3%.
(b) What is the NPV of the loan to you?
(c) What is the NPV of the loan to the bank?
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Personal Finance Building Your Future
Authors: Robert B. Walker, Kristy P. Walker
1st edition
9780077861728, 978-0073530659
