Suppose a family business approaches your bank to borrow $200,000 for the down payment on a set of machinery. Your bank is currently earning 5% annual interest on similar loans. You, as a loan officer, are consider the following repayment options :

(i) Borrower repays $25,900 each year over the next 10 years.

(ii) Borrowers repays $30,000 each year over the next 5 years, plus a lump-sum payment of $89,500 in the 5th year.

(iii) Borrower repays $210,000 at the end of one year.

a. Calculate the present values of each of the above options. Also describe what type of loan/bond the three options may be similar to.

b. What are the major differences of these 3 repayment options ?