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

  What is the true initial cost figure-caughlin company

Caughlin Company needs to raise $65 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity

  Crime or basis of liability

If so, what crime(s), and what punishment(s) is/are possible? Who likely would be criminally prosecuted in this situation - BFC, Williams

  Find what is the current value of ibm stock

Apple has just paid a dividend of $4 per share (this dividend is already paid sometimes called Dividend 0). It is estimated that the companys dividend.

  What is the minimum shipping cost

Find the number of pairs shipped from each warehouse to each outlet to minimize the shipping costs. What is the Minimum shipping cost?

  Organization is structured differently when it operates

Evaluate how an organization is structured differently when it operates solely within one country versus one that operates in multiple countries.

  Describe interest rate swaps and their valuation approaches

Describe interest rate swaps and their valuation approaches. Explain how interest rate swaps work

  Which of the following events are likely to increase the

which of the following events are likely to increase the market value of a call option on a common stock? explain.a. an

  What is the principle balance on the loan

In 10 years, you decide to sell your house and pay off the mortgage. What is the principle balance on the loan?

  How the soles of running shoes have evolved

How the soles of running shoes have evolved. Running-shoe designs have changed with advances in technology.

  What would be the price he can sell it for

What would be the price he can sell it for, assuming the grown rate of dividends has remained at 10.72% forever and the required rate of return has remained at

  Acquisition of a small biotech company

New Dawn Pharma is considering the acquisition of a small biotech company - Sunset Pharmaceuticals. Sunset is developing a new drug that, if successful

  Should the truck be leased or purchased

Should the truck be leased or purchased? Provide your decision based on NPV analysis.

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