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Calculate loan rate that should be quoted to this borrower

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Reference no: EM133018477

Question - Suppose a bank estimates that the marginal cost of raising loanable funds to make a $12 million loan to one of its corporate customers is 5 percent, its non-funds operating costs to evaluate and offer this loan are 0.6 percent, the default-risk premium on the loan is 0.385 percent, a term-risk premium of 0.615 percent is to be added, and the desired profit margin is 0.35 percent. Using the "Cost-Plus loan pricing model" calculate loan rate that should be quoted to this borrower?

Reference no: EM133018477

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