What annual interest rate should sara charge

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Q1. Sara wants to know that if she were to invest in $100 million in the debt of REITMMFPE1.The one-year US Treasury rate is 2.53%. In lieu of the investment risk that sara is undertaking, she expects her maximum potential loss in the event of a default by REITMMFPE to be about 3000 basis points. But since REIT MMFPE owns high quality real-estate assets, in the event of a loss Lexi expects to recover about 50% of her loss. If the chance of a default in the coming year is about 15%. What annual interest rate should Sara charge for lending to REIT MMFPE to be adequately compensated for the risk undertaken?

In question above, the expected rate of return of equity investors of REIT MMFPEis10.0%. The corporate tax rate is 21%.If the total market value of all equity for REIT MMFPEis $200 million. Kimwants to know what is the weighted average cost of capital of REIT MMFPE?

Reference no: EM133150244

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