Expected return on loan

Assignment Help Finance Basics
Reference no: EM13855087

An FI has issued a one-year loan commitment of $10 million for an up-front fee of 50 basis points. The back-end fee on the unused portion of the commitment is 20 basis points. The bank's base rate on loans is 7 percent, and loans to this customer carry a risk premium of 2 percent. The bank requires a compensating balance on loans of 10 percent to be placed in demand deposits and must maintain reserve requirements on demand deposits of 10 percent. The customer is expected to draw down 60 percent of the commitment at the beginning of the year. The FI has a cost of capital of 5%

(a) Discuss what is the expected return on this loan without taking future values into consideration?

(b) What is the expected return on this loan using future values? That is, the fees and interest income are evaluated at the end of the year when the loan is due.

(c) What is the expected annual return on the loan if the draw-down on the commitment does not occur until at the end of nine months?

Reference no: EM13855087

Questions Cloud

Estimate the difference between the yearly incomes : In order to estimate the difference between the yearly incomes of marketing managers in the east and the west, the following information was gathered:
Discuss why it is important for executive support systems : Discuss why it is important for executive support systems to provide support for decision making in situations that involve a high degree of uncertainty.
Explain the pharmacy technician certification board : discuss about some in the benefits of the same and the way it makes medications much easier to use. Get certified through the Pharmacy Technician Certification Board. Be patient with all the new replacement, you want her to look forward to letting..
Expected return on loan : Discuss what is the expected return on this loan without taking future values into consideration? What is the expected return on this loan using future values? That is, the fees and interest income are evaluated at the end of the year when the loan..
Examine two advantages of the intrusion detection systems : Examine two advantages and two disadvantages of both the Intrusion Detection Systems (IDS) and Intrusion Prevent Systems (IPS). Explain which you would select if your organization could only have one or the other. Provide rationale for your res..
Create a user manual that documents how to build the compute : Create a user manual that documents how to build the computer.
Explain some uses to improve processes in your organization : Watch the video at http://youtu.be/tj8Saa1MbrI. Explain some uses to improve processes in your organization or one you know using the six sigma principles
Evaluate the potential impact of the updated facility : Evaluate the potential impact of the updated facility and new therapy services on potential improvements in patient satisfaction and developing new marketing share

Reviews

Write a Review

Finance Basics Questions & Answers

  Discuss the general characteristics of each

Identify the alternatives for investing cash on a short-term basis, and discuss the general characteristics of each.

  Determine the associated earnings per share

Degree of financial leverage Northwestern Savings and Loan has a current capital structure consisting of $250,000 of 16 percent debt and 2,000 shares of common stock.

  Over the years the research findings regarding changing

over the years the research findings regarding changing from fifo to lifo have varied. why do you suppose this is the

  Governmental fund financial statements

Are governmental fund financial statements sufficient for users seeking information about operational accountability? If so, why? If not, what type of information is needed to properly assess the effectiveness of the agency's operations that governme..

  Star corporation issued 5 million of preferred stock the

star corporation issued 5 million of preferred stock. the flotation cost was 10 percent of gross proceeds. the dividend

  Signet pipeline co is looking to install new equipment that

signet pipeline co. is looking to install new equipment that will cost 2750000. the cash flows expected from the

  What is the approximate number of bonds this company

What is the approximate number of bonds this company would be required to issue (after paying floatation cost) for raising $1.5 million? Assume tax rate to be 34%.

  Compute book value net worth per share if there is 50600

amigo software inc. has total assets of 891000 current liabilities of 240000 and long-term liabilities of 188000. there

  Explain the implication the law of one price has for price

Explain the implication the Law of One Price has for the price of a financial security. Provide examples.

  Wall street and unsuspecting financial planners has been

historically high return stocks have exhibited lower risk than low return stocks?.just the opposite what the sml

  What is the standard deviation of that selection

The game show has placed a subliminal message on the curtain containing the gag prize, which makes the probability of choosing the gag prize equal to 75 percent.

  Lagging its industry averages

Hatfield Medical Supplies's stock price had been lagging its industry averages

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