Bobwalks into TD and asks the bank manager to commit to extending him a one-year loan two years from now at a rate of 8%. The bank has a policy of charging customers 1.5% more than the government of Canada bond rate to earn a profit for the bank. The following information is known: Two year bond rate is 5% Three year bond rate is 6.5% Liquidity premium on two and three year bonds 0.8% and 1.2% Should the bank manager accept to customers request and commit to lending him money at 8% two years from now?
Bobwalks into TD and asks the bank manager to commit to extending him a one-year loan two years from now at a rate of 8%. The bank has a policy of charging customers 1.5% more than the government of Canada bond rate to earn a profit for the bank. The following information is known: Two year bond rate is 5% Three year bond rate is 6.5% Liquidity premium on two and three year bonds 0.8% and 1.2% Should the bank manager accept to customers request and commit to lending him money at 8% two years from now?
Chapter4: Gross Income: Concepts And Inclusions
Section: Chapter Questions
Problem 8DQ
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Bobwalks into TD and asks the bank manager to commit to extending him a one-year loan two years from now at a rate of 8%. The bank has a policy of charging customers 1.5% more than the government of Canada bond rate to earn a profit for the bank. The following information is known:
-
Two year bond rate is 5%
-
Three year bond rate is 6.5%
-
Liquidity premium on two and three year bonds 0.8% and 1.2%
Should the bank manager accept to customers request and commit to lending him money at 8% two years from now?
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