Suppose a business wishes to purchase a new building for $10,000,000 to use in their operations. The lender offers two alternatives. First, the borrower can take a 60% LTV partially amortizing loan with monthly compounding. The payment is computed over 30 years, but the outstanding balance is due after 10 years. The loan charges 8% interest, 2 points, $5,000 in closing costs, and a 50% prepayment penalty. The second option is a 60% LTV participation loan at 6% with monthly payments. With this option, the lender receives 30% of any monthly sales over $50,000. Here, the payment is also computed over 30 years, but the balance is due after 10 years. This loan charges no points or closing costs, but also includes a 50% prepayment penalty. What is the effective rate of each loan over a 10 year holding period? Which loan is better and why? Explain fully. The borrower projects monthly sales annually, meaning the same monthly sales will apply to each month in any given year. (Coincidentally, this makes the problem easier to work.) The following chart lists the projected sales per month, in dollars, for each of the next 10 years.

1	2	3	4	5	6	7	8	9	10
30,000	35,000	40,000	45,000	50,000	60,000	80,000	100,000	150,000	200,000