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Calculate the repayment cash flows for a four-year loan

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A company has a choice between a bullet loan and an equivalent amortized loan with a value of $3,500,000. Calculate the repayment cash flows for a four-year loan with 3.15% pa fixed interest rate bullet loan and the equivalent amortized loan.

Year

Bullet loan repayments

Amortized loan repayments

 

3.15%

2.35%

3.15%

2.35%

1

?

 

?

 

2

?

 

?

 

3

?

 

?

 

4

?

 

?

 

Based on your calculations for the bullet loan repayments and amortized loan repayments, explain why the bank recommends that the amortized loan be taken. If interest rates fell to 2.35% fixed rate, would that alter the bank's recommendation? 

Reference no: EM133071453

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