What is the present value of the rescheduled loan

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A $20 million loan outstanding to the Nigerian government is currently in arrears with City Bank. After extensive negotiations, City Bank agrees to reduce the interest rates from 10 percent to 6 percent and to lengthen the maturity of the loan to 10 years from the present 5 years remaining to maturity. The principal of the loan is to be paid at maturity. There will no grace period and the first interest payment is expected at the end of the year.

Question 1: If the cost of funds is 5 percent for the bank, what is the present value of the loan prior to the rescheduling?

Question 2: What is the present value of the rescheduled loan to the bank?

Question 3: What is the concessionality of the rescheduled loan if the cost of funds remains at 5 percent and an up-front fee of 5 percent is charged?

Question 4: What up-front fee should the bank charge to make the concessionality equal zero?

Reference no: EM132608873

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