Question 3: Assume the following expected income on the loan of $200,000: Interest Income rate on loans = 7% Interest expense rate on deposit accounts that will fund the loan = 5.5% Overhead expense rate to administer the loans = .75% Expected loss rate on the loan = .40% Part A. If the "economic capital" is $7,000 what is the Risk Adjusted Rate of Return?. Input your answer in the .XXXX format Part B. Should the bank make this loan if the expected hurdle rate is 15% ?. Input your answer as either Yes or No

Question 3: Assume the following expected income on the loan of $200,000: Interest Income rate on loans = 7% Interest expense rate on deposit accounts that will fund the loan = 5.5% Overhead expense rate to administer the loans = .75% Expected loss rate on the loan = .40% Part A. If the "economic capital" is $7,000 what is the Risk Adjusted Rate of Return?. Input your answer in the .XXXX format Part B. Should the bank make this loan if the expected hurdle rate is 15% ?. Input your answer as either Yes or No

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 4P: Gifts Galore Inc. borrowed 1.5 million from National City Bank. The loan was made at a simple annual...

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Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 12% nominal rate; (b) borrow on a 3-month, but renewable on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of the least expensive type of credit, assuming 360 days per year?
Gifts Galore Inc. borrowed 1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate. a. The nominal annual rate on the loan was 11.25%. What is the true effective rate? b. What would be the effective cost of the loan if the note required discount interest? c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?
Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)
1. Let's assume that a loan of $100,000 with an annual interest rate of 6% over 30 years pays monthly payments of $500. a. Calculate the accumulation rate b. Calculate the payment rate . c. Answer : How will the balance of the principal be at the end of the loan in relation to the original amount of the loan? Less, equal or greater? Provide calculations.