A company borrowed $10 million for five years form Atlantic Bank. The company pays Atlantic Bank a fixed annual rate of 8 percent and must pay back the $10 million loan at the end of the borrowing period. A year has passed since the loan was made and Atlantic Bank wants to sell the loan to pacific bank.
a. If the interest rate is now 7 percent, what is the value of the loan?
b. What would be the value of the loan if the company is paying the bank 4 percent every 6 months instead of 8 percent per year?
Please list all steps