jasper inc is looking for a five-year term loan of $3 million. Its bank is willing to make the loan. Because of its credit history, the firm will have to pay a premium of 1.75 percent for the default risk and another 0.25 percent for maturity risk. The current prime rate is 6.5 percent. The loan rate Jasper must pay on this bank loan is 4%. (True/False)
Answer is false. The rate to be paid is default risk premium + maturity risk premium + prime rate = 1.75%+0.25%+4%=6%
jasper inc is looking for a five-year term loan of $3 million. Its bank is willing...
The Gold Company is applying for a five-year term loan from its bank. The lender determines that the firm should pay a default risk premium of 1.75 percent over the Treasury rate. The five-year Treasury rate is currently 5.65 percent. The firm must also pay a marketability risk premium of 0.80 percent. What is the total borrowing cost to the firm?
Help with #3? 101 a rates and financial market news. Summarize the current financial market conditions. summary of recent venture capital inve performance. Summarize the return ex for the various venture-investing rounds. vital investment return experience Exercises/Problems 1. [Inflation and Risk Premiums) Voice River, Inc, provides media-on-demand services via the Inte Management has been studying current interest rates. A lender is willing to make a two-year loan Voice River at a 12 percent annual interest rate. The U.S. government is...
nitiduri APK 18-8A/(Cost of short-term bank loan) The Southwest Forging Corporation recently arranged for a line of credit with the First National Bank of Dallas. The terms of the agreement called for a $100,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 20 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 12 percent. V a. If Southwest normally maintains a $20,000 to...
1. A particular security's equilibrium rate of return is 8 percent.5. Tom and Sue's Flowers, Inc.'s 15-year bonds are currently yielding a return of 8.25 percent. The expected inflation pre- mium is 2.25 percent annually and the real risk-free rate is expected to be 3.50 percent annually over the next 15 years. The default risk premium on Tom and Sue's Flowers's bonds is 0.80 percent. The maturity risk premium is 0.75 percent on five-year securities and increases by 0.04 percent...
4- Assume that you can borrow $175,000 for one year from a local commercial bank a. The bank loan officer offers you the loan if you agree to pay $16,000 in interest plus repay the $175,000 at the year. What is the percent interest rate or effective cost? discount loan at 9 percent interest. What is the percent interest rate or effective cost? c. Which one of the two loans would you prefer? 5- Assume that the interest a. If...
Rockinghouse Corp. management plans to issue seven-year zero coupon bonds. It has learned that these bonds will sell today at a price of $365.13. Assuming annual coupon payments, what is the yield to maturity on these bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) Electrolex, Inc., has four-year bonds outstanding that pay a coupon rate of 12.76 percent and make coupon payments semiannually. If these bonds are currently selling...
9. A financial institution is considering a customer’s request for a 12-year $15 million loan, with annual interest payments and the principal due at maturity. The financial institution requires a 22.5% risk adjusted return on capital for this loan. Its cost of funds is 3.875% for this loan and it will charge a 2% risk premium. Historically, the worst 1% of comparable loans experience a 125 basis point increase in the credit risk premium. The financial institution’s typical origination fee...
(Cost of short-term bank loan) On July 1, 2015, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the agreement call for a $100,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 20 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 4.5 percent. If Southwest normally maintains a $20,000 to...
QUESTION 6 Cortland Bank awarded a loan to SunEdison at 12% for 3 years. The pure rate of interest is 2%. The company's default risk premium is 3%, its maturity risk premium is 1% and its liquidity risk premium is 2%. Inflation is expected to be 3% in the first year of the loan and 4% in the second year. What is the inflation rate expected to be in the loan's third year? For the toolbar, press ALT+F10 (PC) or...
5. Bank loans Short-term financing through bank loans Consider this case: Central Corp. needs to take out a one-year bank loan of $500,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 9% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. Based on a 360-day year,...