You expect to graduate four years from now and need to borrow money to finance your education. You plan to take out an educational loan from a bank and borow $20,000 a year for the next three years. The first amount is drwn immediately. The annual interest being charged is 4%. For the next 4 years you do not pay any interest, the interest is rolled back into the loan at the end of the year. A year after you graduate and must start paying your loan. You must pay your loan in 15 equal annual installments, i.e. you will make one payment per year for 15 years.

a. Draw a cash flow diagram for this loan

b. What is the total value of the loan the year after you graduate (just before you start repayment)?

c. What will be the amount of the annual payments?

d. Right after making the 5th annual payment, you decide to pay off the entire loan. How much will you have to pay?

e. How much interest will you have paid?