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Five years ago you incurred a 10-year term loan that required annual payments of $1,150 per...

Five years ago you incurred a 10-year term loan that required annual payments of $1,150 per year. You have made four payments in previous years and the fifth payment is due today. The note holder proposes that you buy back this note today for $4,395. Would it pay you to borrow the money at the bank at 13% interest rate and buy back this note (hint: calculate the market value of the loan and compare with the price for which the bank is willing to sell you the note)?
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Answer #1

Market value of loan at end of year 5 = current payment + [PVA 13%,5 **Amount]

                           1150+ [3.51723*1150]

                            1150 + 4044.81

                             5194.81

since the buyback amount is lower than market value of loan ,loan should be buyback .

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