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An FI has issued a one-year loan commitment of $10 million for an up-front fee of 50 basis points. The back-end fee on the unused portion of the commitment is 20 basis points. The bank's base rate on loans is 7 percent, and loans to this customer carry a risk premium of 2 percent. The bank requires a compensating balance on loans of 10 percent to be placed in demand deposits and must maintain reserve requirements on demand deposits of 10 percent. The customer is expected to draw down 60 percent of the commitment at the beginning of the year. The FI has a cost of capital of 5%
(a) Discuss what is the expected return on this loan without taking future values into consideration?
(b) What is the expected return on this loan using future values? That is, the fees and interest income are evaluated at the end of the year when the loan is due.
(c) What is the expected annual return on the loan if the draw-down on the commitment does not occur until at the end of nine months?
Calculation of yield to maturity and The bond has an 8 percent semiannual coupon and a par value of $1,000
Based on the NPV analysis, should Firm XYZ purchase this new equipment? Show your work
1.Frieda Inc. is considering a capital expansion project. The initial investment of undertaking this project is $105,500. This expansion project will last for five years. The net operating cash flows from the expansion project at the end of year 1, 2..
Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?
The market price of a security is $55. Its expected rate of return is 9.26%. The risk-free rate is 4.26%, and the market risk premium is 5.26%. Assume the stock is expected to pay a constant dividend in perpetuity.
Mary and Joe would like to save up $10,000 by the end of 3 years from now to buy new furniture for their home. They currently have $1,500.
DEF has outstanding debt issue. The debt maturity is May 10, 2018 with 6.25% coupon, which is paid semiannually. Estimate the price of bond on November 10, 2014 after coupon is paid.
A firm has a debt to equity ratio of 0.6, a leveraged firm value of $9,200, a pre-tax cost of debt of 8 percent, a cost of equity of 16 percent, and a tax rate of 32 percent. What is the firm's weighted average cost of capital?
What invovement would nonfinancial people such as those in marketing, accounting, and production have in the analysis ?
The peso-denominated dividend is expected to grow at a rate of 8% a year indefinitely.
George is considering an investment in Vandelay Inc. and has gathered the information in the following table. What is the expected standard deviation for a share of the firm's stock?
What are the characteristics of standard normal distribution? The HR department of an organization collects data on employees: age, salary, level of education, gender, and ethnicity. Which data do you think is more likely to follow normal distribu..
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