Financial institution is planning to give a loan

Assignment Help Financial Management
Reference no: EM13927997

Please show work and how you arrived at your conclusion.

The assignment may be submitted as an Excel spreadsheet or an electronic (Word or PDF) document.

A financial institution is planning to give a loan of $5 million to a firm. It expects to charge an up-front fee of 0.20% and a service fee of 5 basis points. The loan has a maturity of 8 years. The cost of funds for the financial institution is 10%.

The FI has estimated a risk premium of 0.15%. The current market interest rates for this type of loan is 10.1%.

The 99th (extreme case) loss rate for borrowers of this type has historically run at 4%.

The dollar proportion of loans of this type that cannot be recaptured on default has historically been 85%.

Using the RAROC model, would you recommend that the FI make this loan? Why?

Reference no: EM13927997

Questions Cloud

Expected cash inflows-what is projects discounted payback : Project K costs $48,152.88, its expected cash inflows are $10,000 per year for 10 years, and its WACC is 9%. What is the project's IRR? Project K costs $35,000, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 9%. What is t..
What is the current yield on keyser materials bonds : Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. What is the current yield on Keyser Materials bonds? The YTM? The effective annual yiel..
What are the portfolio weights for a portfolio : What are the portfolio weights for a portfolio that has 158 shares of Stock A that sell for $35 per share and 135 shares of Stock B that sell for $25 per share? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g.,..
Find the sales tax of a new ground pool : Find the sales tax of a new above ground pool that you pay $10,500 for if the tax rate in your area is 8.9%. b) Find the marked price and tax for an $11 beer at the local football stadium, where the sales tax rate is 9.5%.
Financial institution is planning to give a loan : The assignment may be submitted as an Excel spreadsheet or an electronic (Word or PDF) document. A financial institution is planning to give a loan of $5 million to a firm. It expects to charge an up-front fee of 0.20% and a service fee of 5 basis po..
Considering purchasing an outstanding bond : Today is January 1, 2009 and you are considering purchasing an outstanding bond that was issued on January 1, 2007. It has a 9.5% annual coupon and originally had a 30-year maturity. (They mature on December 31, 2036.) The bonds can be called for 5 y..
Bonds are identical except for coupon and price : If the following bonds are identical except for coupon and price, what is the coupon of bond B?
What should be the initial price of the bond : A 16-year, $1,000 par value zero-coupon rate bond is to be issued to yield 6 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. What should be the initial price of the..
Same expected return and the same standard deviation : Stock ABC and Stock XYZ have the same current price of $50, and they offer the same distribution of future returns (with the same expected return and the same standard deviation). There exists a call option on one share of Stock ABC and a call option..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the expected return on the portfolio after purchase

Your portfolio is diversified. It has an expected return of 10.0% and a beta of .95. You want to add 500 shares of Company D's at $40 a share to your portfolio.  Company D's has an expected return of 9.0% and a beta of .75. The total value of the inv..

  Determine the companys growth rate of EPS or dividends

You will search Ford’s form 10K and identify 3 major risks identified by the company. Assess the company’s market share for automobiles. Determine the company’s growth rate of EPS or dividends. Calculate the company’s Beta coefficient of the stock.

  Retained earnings decreased by what amount

Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 15% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash ..

  What is the return expected on investment measured

What is the return expected on investment measured in dollar terms if the opportunity cost rate is 10 percent and provide an explanation, in economic terms, of your answer.

  Annual coupon and sells-what is its yield to maturity

A bond has a $1,000 par value, 7 years to maturity, and a 9% annual coupon and sells for $1,095. What is its yield to maturity (YTM)? Assume that the yield to maturity remains constant for the next 4 years. What will the price be 4 years from today?

  Use a geometric average in your calculations

Today, interest rates on 1-year T-bonds yield 1.6%, interest rates on 2-year T-bonds yield 2.45%, and interest rates on 3-year T-bonds yield 3.5%. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be s..

  What is the after-tax operating cash flow

The company C is considering the acquisition of a new machine that will last for 20 years. The machine costs $500,000 and belongs to CCA class 8 (CCA rate : 20%). The machine would require an investment in net working capital of $25,000 in year 1.

  What is the actual exchange rate today

One year ago the spot exchange rate between the Chilean peso and the U.S. dollar was Ps600.00/$. During the past year, the Chilean peso fell 35% in value against the dollar. During this same 12-month period, prices in the U.S. were stable but Chilean..

  Footnote for danerys year-end financial statements

Write the footnote for Danerys' year-end financial statements (assume 12/31/13 year-end) related to goodwill and other intangible assets - Determine the appropriate acquisition-date journal entry for the acquisition.

  Compute the total accounts receivable in each age category

Determining Bad Debt Expense Based on Aging Analysis LO6-3 [The following information applies to the questions displayed below.] Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Com..

  Dividends are expected to grow-what is current share price

Hughes Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 15 percent and the company just paid a $3.5..

  Flat solar panels-mechanized solar panels

Florida Power and Light has committed to building a solar power plant. JoAnne, an IE working for FPL, has been tasked with evaluating the three current designs. FPL uses an interest rate of 10% and a 20-year horizon. A field of “flat solar panels ang..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd