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Arada
1 month ago
6

The interest rate is 10% but the government offers you a subsidized perpetual loan for $1m at 5%. in other words, you get the $1

m today and, in return, you pay the government $50,000 a year forever (you a re immortal). how much is this subsidy worth?
Business
1 answer:
Nady [2.9K]1 month ago
3 0

Response:

The value of the loan subsidy at 5% is $1,000,000, while at 10% it stands at $500,000.

Clarification:

The government offers a subsidized perpetual loan of $1,000,000

with an interest rate of 5%.

The annual payment for this is $50,000.

The following calculation determines the worth of the loan subsidy perpetually.

The total subsidy loan value at 5% is found by $50,000 / 5% = $1,000,000.

For the subsidy loan at 10%, it is $50,000 / 10% = $500,000.

The value of the loan subsidy at 5% is $1,000,000, and at 10% it is $500,000.

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