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A financier has made a loan of $14 million
A financier has made a loan of $14 million. The contract for the loan calls for payment of interest quarterly at a nominal annual rate of 7.8%, until the full principal is repaid in one lump sum at the end of 14 years. After 3 years have gone by, immediately after the quarterly payment, the financier decides to sell the asset to an investor. If the investor values these cash flows with a nominal annual rate of 6% when compounded quarterly, what value would the investor consider the remaining loan contract to be worth? 16.122 Answer in millions of dollars, correct to 3 decimals. Just Save Submit Problem #7 for Grading Attempt #2 Attempt #3 Attempt #4 Attempt #5 Problem #7 Your Answer: Attempt #1 16.122 0/2x Your Mark:
Expert Solution
This loan for the investor is lika a coupon paying bond with the coupon rate of 7.8%, paid quarterly and the face value of $ 14 million. Time to maturity is the remaining time, i.e 11 years and yield to maturity is 6%. The value of this loan contract can be found using the PV formula in excel. The required inputs are
nper = 44 (11*4 quarters)
rate = 1.55 (6%/4 since quarterly)
PMT = 7.8%/4 * face value = 273000 (interest payment per quarter)
FV = loan amount recieved at maturity = 14,000,000
The value of this loan contract is 16,018,559.2 for the investor. The value is negative as this is the amoount he will pay for this loan contract.
PLEASE SEE THE ATTACHED FILE.
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