What loan rate would charge

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In order to help fund a loan request of $10 million for one year from one of its best customers, Lone Star Bank sold negotiable CDs to its business customers in the amount of $6 million at a promised annual yield of 3.50 percent and borrowed $4 million in the Federal funds market from other banks at today's prevailing interest rate of 3.25 percent.

Credit investigation and recordkeeping costs to process this loan application were an estimated $25,000. The Credit Analysis Division recommends a minimal 1 percent risk premium on this loan and a minimal profit margin of one-fourth of a percentage point. The bank prefers using cost-plus loan pricing in this cases.

Problem 1: What loan rate would it charge? Show all calculations.

Reference no: EM132996146

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