Borrow $5,000,000 from a bank quoted 3.4% annual interest rate and do quarterly payments of $400,000. How many years does it take to pay the loan back? Round your answer to two decimals. Use your finding to calculate cumulative interest and Cumulative principal paid
Borrow $5,000,000 from a bank quoted 3.4% annual interest rate and do quarterly payments of $400,000. How many years does it take to pay the loan back? Round your answer to two decimals. Use your finding to calculate cumulative interest and Cumulative principal paid
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
If you could solve option 3 with formulas
Option 3: Borrow $5,000,000 from a bank quoted 3.4% annual interest rate and do quarterly payments of $400,000. How many years does it take to pay the loan back? Round your answer to two decimals. Use your finding to calculate cumulative interest and Cumulative principal paid
![Option 3
Loan
APR
Periods/year
Payments (year)
Future value of loan
Period
Interest
Principal
Balance](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7ca874b9-cbf0-443e-b65b-4d9e35817072%2F5194d370-06ab-48de-9cf6-46cb426eaec3%2Fpijx2kq_processed.png&w=3840&q=75)
Transcribed Image Text:Option 3
Loan
APR
Periods/year
Payments (year)
Future value of loan
Period
Interest
Principal
Balance
![Future
Present Value Annual Interest
Duration in
Periodic Payment
Value
Annual
Cumulative
Cumulative
Option
(PV)
Rate
Years
Periods/ Year
(PMT)
(FV)
Payments
Interest
Principal
Option 1: $4,600,000 loan at 3.5% APR.
Bimonthly for 5 years.
Option 2: $5,000,000 loan at 3.8% APR.
Monthly for 6 years.
Option 3: $5,000,000 loan at 3.4% APR.
Quarterly payments of $400,000
Option 4: $150,000/month from store revenue
for 10 months. 2.5% opportunity cost lost.
Option 4: Finance the balance, $3,500,000
from the bank at 3.4% quarterly for 5 years.
Option 5: $2,500,000 from investment
account. 3% opportunity cost lost for 10
months.
Option 5: $2,500,000 from the bank at 4.0%
paid back monthly for 3 years](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7ca874b9-cbf0-443e-b65b-4d9e35817072%2F5194d370-06ab-48de-9cf6-46cb426eaec3%2Fgnu09md_processed.png&w=3840&q=75)
Transcribed Image Text:Future
Present Value Annual Interest
Duration in
Periodic Payment
Value
Annual
Cumulative
Cumulative
Option
(PV)
Rate
Years
Periods/ Year
(PMT)
(FV)
Payments
Interest
Principal
Option 1: $4,600,000 loan at 3.5% APR.
Bimonthly for 5 years.
Option 2: $5,000,000 loan at 3.8% APR.
Monthly for 6 years.
Option 3: $5,000,000 loan at 3.4% APR.
Quarterly payments of $400,000
Option 4: $150,000/month from store revenue
for 10 months. 2.5% opportunity cost lost.
Option 4: Finance the balance, $3,500,000
from the bank at 3.4% quarterly for 5 years.
Option 5: $2,500,000 from investment
account. 3% opportunity cost lost for 10
months.
Option 5: $2,500,000 from the bank at 4.0%
paid back monthly for 3 years
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