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Calculating the loan amount

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Suppose Subaru of America, Inc. wishes to borrow money from UBS. They agree on an annual rate of 10%.

1. Suppose Subaru agrees to repay $500 million at the end of 4 years. How much will UBS lend Subaru?
2. Suppose Subaru agrees to repay a total of $500 million at a rate of $125 million at the end of each of the next 4 years. How much will UBS lend Subaru?

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Solution Summary

The solution describes the steps to calculate the loan amount for the given repayment structure.

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1. Suppose Subaru agrees to repay $500 million at the end of 4 years. How much will UBS lend Subaru?
Amount to be returned after 4 years=FV=$500 million
Number of periods=n=4=8 (annual)
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Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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