What risk premium will financial institution require

Assignment Help Financial Management

Reference no: EM132021026

What risk premium will a financial institution require on a $25 million loan given the following information:

the financial institution needs an expected return of 6.75% in order to generate the desired profit for its investors;

the expected default rate on loans of this type is 3%;

if the borrower defaults on the loan, the financial institution expects to recover 70% of the total return;

the financial institution’s base rate covers its costs of funds (2.5%) and overhead (2%);

the lender charges an origination fee of 0.375% of the loan amount; and the lender requires the borrower to maintain a compensating balance in an amount equal to 5% of the loan balance in an interest bearing certificate during the full term of the loan.

Reference no: EM132021026

Questions Cloud

How to find the best person for the job : How to find the best person for the job: job analysis, job design, clear job description and person specification, realistic job preview, values match,

Evaluate generation project with the cash flows : Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the following cash flows:

Identify the individual and their position within company : Explain one incident where this individual had to solve a difficult problem or situation because things did not go as planned.

What is the value of the call option : Using the Black-Scholes model, what is the value of the call option?

What risk premium will financial institution require : What risk premium will a financial institution require on a $25 million loan given the following information:

What is the npv for the project if required return : A project that provides annual cash flows of $15020 for eight years costs $89575 today. What is the NPV for the project if the required return is 19 percent?

Create a compelling vision for the organization : Leaders today must be able to create a compelling vision for the organization. They also must be able to create an aligned strategy and then execute it.

Determine the number of edges in the trail : Determine the y-coordinate of the point with a residual of 0.16 on the above plot - Calculate the value of Atarcoin ten weeks after its launch date.

Explain how leaders need to respond to them : The pace of organizations is faster than ever due to technology advances and impatience in stakeholder groups. There is increased diversity due to globalization

User Account

All Pages