Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
An FI has issued a one-year loan commitment of $2 million for an up-front fee of 25 basis points. The back-end fee on the unused portion of the commitment is 10 basis points. The FI’s base rate on loans is 7.5 percent and loans to this customer carry a risk premium of 2.5 percent. The FI requires a compensating balance on loans of 5 percent in the form of demand deposits. Reserve requirements on demand deposits are 8 percent. The customer is expected to draw down 80 percent of the commitment at the beginning of the year.
a. What is the expected return on the loan without taking future values into consideration?
b. What is the expected return using future values? That is, the net fee and interest income are evaluated at the end of the year when the loan is due.
c. How is the expected return in part (b) affected if the reserve requirements on demand deposits are zero?
d. How is the expected return in part (b) affected if the compensating balances are paid a nominal interest rate of 2.5 percent?
e. What is the expected return using future values, but with the compensating balance placed in certificates of deposit that have an interest rate of 5.5 percent and no reserve requirements, rather than in demand deposits?
WSM Wine Importers, Inc. purchased 75,000 cases of French wine at a cost of 6,000,000 Euros. If the current exchange rate is 0.7576 Euros to the U.S. dollar, what is the purchase price of the wine in U.S. DOLLARS?
Suppose that you buy an interest rate cap on three month LIBOR with a two year maturity and simultaneously sell a floor on three month LIBOR with a two year maturity. Ignore the premiums. Draw a profit diagram that indicates when you will gain and lo..
A bond has a coupon rate of 9 percent and 5 years until maturity. If the yield to maturity is 8.4 percent, what is the price of the bond?
You are working as a corporate treasurer and observe the following two exchange rates. Calculate, using $1 million how you could make an arbitrage (risk-free) profit.
Bennington Industrial Machines issued 153,000 zero coupon bonds six years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.3 percent. Interest rates have recently increased, and the bonds now have a yield to maturity o..
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $215,000, a 3-year expected life, and after-tax cash flows (labor savings and depre..
Banks and other depository institutions make loans, invest in government securities, buy and sell federal funds, and accept deposits with a wide spectrum of maturities and with many payable on demand. Briefly discuss the risks facing these institutio..
Suppose your company needs $11 million to build a new assembly line. Your target debt−equity ratio is .45. The flotation cost for new equity is 11 percent, but the flotation cost for debt is only 8 percent. What is your company’s weighted average flo..
To calculate the after-tax cash flow for a firm using an Income Statement, you would ______.
Describe a hypothetical, community bank with approximately 30 employees. The bank has only one location—a 2,800 square foot building located downtown housing their 30 employees. Describe the relevant characteristics of this small bank in depth.
The asset beta for a particular firm is 0.90. Use Equation 9.6 to estimate the equity betas for the firm with 30% debt ratio and 35% tax rate. What is the firm’s equity beta? A company offers credit terms 5/20 net 40. What is the effective annual rat..
It is true that the change in shareholders’ equity during a year is equal to the change in net assets in that year. This equation is important because:
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd