Question
You, the bank, are are lending $1,000,000 to a manufacturing company which wants to renovate an old building before selling it in three years. The
You, the bank, are are lending $1,000,000 to a manufacturing company which wants to renovate an old building before selling it in three years. The company gets paid by its main customer every 4 months and wants to make payments every 4 months with a balloon payment of $300,000 at the end of 3 years. You require 12% APR compounded monthly on all your loans. You will design an equivalent loan with the desired payment schedule.
a)Show your cash flow diagram from the banks standpoint.
b)What is the effective 4-month interest rate?
c)What is the 4-month payment?
d)What is the APY for the Loan?
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