Question

How is the market value of a term loan at the beginning of the third year computed?

A) Amortization schedule analysis
B) Discounted cash flow method
C) Present value calculation
D) Future value estimation

Answer 1

The market value of a term loan at the beginning of the third year is computed using the present value calculation.

Step-by-step explanation:

The market value of a term loan at the beginning of the third year is computed using the present value calculation.

1. First, determine the cash flows expected to be received in the third year of the loan.
2. Next, discount these cash flows to the present value using the appropriate discount rate.
3. Finally, sum up the present values of the cash flows to find the market value of the term loan at the beginning of the third year.