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Your opportunity cost of capital is 10%. A bank offers you a $1M loan with an IRR of 3%. The bank asks you to repay

Your 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? What is the NPV of the loan to the bank?

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