Question

# Saharan Debt Negotiations.   The country of Sahara is negotiating a new loan agreement with a consortium...

Saharan Debt Negotiations.

The country of Sahara is negotiating a new loan agreement with a consortium of international banks. Both sides have a tentative agreement on the Principal—​\$220220 million. But there are still wide differences of opinion on the final interest rate and maturity. The banks would like a shorter​loan, four years in​length, while Sahara would prefer a long maturity of six years. The banks also believe the interest rate will need to be 12.255​% per​annum, but Sahara believes that is too​ high, arguing for 11.754​%.

 Loan 0 Principal \$220,000,000 Interest rate 12.255% Maturity (years) 6 Payments 1 2 3 4 5 6 Interest 26,961,000 23,660,034 19,954,534 15,794,926 11,125,557 5,883,958 Principal 26,935,668.17 30,236,634.17 33,942,134.17 38,101,742.17 42,771,111.17 48,012,710.17 Total 53,896,668.17 53,896,668.17 53,896,668.17 53,896,668.17 53,896,668.17 53,896,668.17

What would be the annual amortizing loan payments for the bank​consortium’s proposal?

What would be the annual amortizing loan payments for​Sahara’s loan​preferences?

How much would annual payments drop on the bank​consortium’s proposal if the same loan was stretched out from four to six​years?

72,820,946.17

53,137,369.36

18,924,278.00

Thank you

a. The annual amortizing loan payments for the bank​consortium’s proposal

Annual Loan Payment = Loan Amount / PVAF (12.255%, 4)

Annual Loan Payment = \$220000000 / 3.021109

Annual Loan Payment = \$72820946.17

b. the annual amortizing loan payments for​Sahara’s loan​preferences

Annual Loan Payment = Loan Amount / PVAF (11.754%, 6)

Annual Loan Payment = \$220000000 / 4.140212484

Annual Loan Payment = \$53137369.36

c. Annual payments if Bank consortium loan stretched to 6 years

Annual Loan Payment = Loan Amount / PVAF (12.255%, 6)

Annual Loan Payment = \$220000000 / 4.081884975

Annual Loan Payment = \$5389668.17

Annual Loan Payment will drop by = \$72820946.17 - 5389668.17

Annual Loan Payment will drop by = \$18924278.00