Calculate the credit spread that dakota needs

Assignment Help Finance Basics
Reference no: EM132801897

The Dakota Bank makes five year loans for college students. Dakota wants to receive an annual interest rate 3.2% compounded continuously without taking into account defaults and inflation. Dakota knows that inflation for the next five years will be at an annual rate of 2.4% compounded continuously.

College students have a high default rate. Dakota believes that 4.2% of the students will default on the loan at the end of 5 years. She also believes that she will be able to recover 20% of the amount owed on defaults.

a. Calculate the credit spread that Dakota needs to charge as an annual rate compounded continuously. (Enter answer as a decimal and round to the nearest 5 decimal places.)

b. Calculate the total annual interest rate compounded continuously that Dakota should charge for the loans including the components for default and inflation. (Enter answer as a decimal and round to the nearest 5 decimal places.)

c. Sammie borrows 32,000 from Dakota to be repaid at the end of five years. Calculate the amount that Sammie will need to repay at the end of five years. (Enter answer as a decimal and round to the nearest 2 decimal places.)

Reference no: EM132801897

Questions Cloud

Reflections on the research experience : Reflections on the research experience, insights I gained, and any issues, struggles, challenges, synergies I experienced, individually and in the teamwork
What is the net income on December : The customer defaulted payment starting November 1, 2019 and the car was immediately repossessed. What is the net income on December 31, 2019
Why you decided to major in interdisciplinary studies : Why you decided to major in Interdisciplinary Studies. What disciplines are you interested in studying? What are your career goals and how will.
Calculate the annual effective interest rate : 1.Diana decides to purchase a US Treasury Bill for 95,100. The Treasury Bill matures in 180 days for 100,000.
Calculate the credit spread that dakota needs : a. Calculate the credit spread that Dakota needs to charge as an annual rate compounded continuously. (Enter answer as a decimal and round to the nearest 5 deci
Describe how you will communicate common goals : Describe how you will communicate common goals. Describe how you will address conflict in a way that is positive within the team.
What amount was received from the note receivable : On October 1, 2020, the maker dishonored the note receivable. What amount was received from the note receivable
Calculate the annual real interest rate compounded : b. Calculate the annual Real Interest Rate compounded continuously. (Enter answer as a decimal and round to the nearest 3 decimal places.)
Describe the educational implications of the disability : Write a 3-page paper on the visually impaired in the special education field. It should include behavioral characteristics of visually impaired, etiology.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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