Valuation of Rondo Securities

Valuation of Rondo Securities

Bank Loan
In assessing the bank impart we can use the present value method. This means pickings the loan and its repayments and assessing what the total value in todays money is after dissolveing for the time element of the money.
The loan was interpreted out at 6% plainly it come ons that worry place have changed since that date. We are not told the new interest rate, but if we look at other securities there is a stop for 8% so we will assume that since the loan was interpreted out the interest rate has increased to 8%.
The front stage of calculating the present value is to assess the direct of repayments and interest payable in any division. For this we will meter the value of the loan for each year and take the interest at 6% on the average smashing amount on the loan. This can then be added to the capital repayments which appear to be set at $2,500,00.00 each year.




Table 1 Repayment schedule for the bank loan with 8% deduction Factor:
Loan outstanding at beginning of occlusiveAt end of periodAverage loan6% interestRepayment of capital numerate repayment
20057,500,0005,000,0006,250,0003750002,500,0002875000
20065,000,0002,500,0003,750,0002250002,500,0002725000
20072,500,00001,250,000750002,500,0002575000
Total repayments30000050000008175000

This gives us the repayment to use in the rating schedule. Now we take the full repayment level and discount these by the current interest rates (Elliott and Elliott, 2005). With each year discounted and then added together we can deduce the amount that is outstanding and find the real value of the loan to the bank.
Table 2 Present Value discounted at 8%
YearTotal paymentDiscount factorPresent valueaccumulative value
200528750000.9262,662,0372,662,037
20062,725,0000.8572,336,2484,998,285
20052,575,0000.7942, 044,1187,042,403
Less outstanding capital7,500,000
Present value-457,597
strickle the present value of the loan as 7,042,403. The full...If you want to get a full essay, order it on our website: Ordercustompaper.com



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