An institutional lender is willing to make a loan for $1 million on an office building at a 6 percent interest (accrual) rate with payments calculated using an 4 percent pay rate and a 30-year loan term. (That is, payments are calculated as if the interest rate were 4% with monthly payments over 30 years.) After the first five years the payments are to be adjusted so that the loan can be amortized over the remaining 25-year term.   Required: a. What is the initial payment? b. How much interest will accrue during the first year? c. What will the balance be after five years?

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Calculating the Return On A Loan