10. Fred creates a loan agency. They will finance elite vehicles to UBER drivers. Fred explains his business as follows: We have signed leases and tomorrow will lend $50 million. We lend each driver $50,000 for 1 year, and they each buy a vehicle for $50,000. We recognize some will default-we believe 70 drivers will fail to repay us. We estimate that vehicles in default can be sold in the secondary market at 78% of their purchase price. We also will incur an average loss of $1,375 per defaulted vehicle, to pay an individual-a repo man-to repossess the vehicle. We believe we will be paid a 3% premium, relative to the 3% 1-year treasury rate. What interest rate will Fred charge his UBER drivers? (Show work)
10. Fred creates a loan agency. They will finance elite vehicles to UBER drivers. Fred explains his business as follows: We have signed leases and tomorrow will lend $50 million. We lend each driver $50,000 for 1 year, and they each buy a vehicle for $50,000. We recognize some will default-we believe 70 drivers will fail to repay us. We estimate that vehicles in default can be sold in the secondary market at 78% of their purchase price. We also will incur an average loss of $1,375 per defaulted vehicle, to pay an individual-a repo man-to repossess the vehicle. We believe we will be paid a 3% premium, relative to the 3% 1-year treasury rate. What interest rate will Fred charge his UBER drivers? (Show work)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:10. Fred creates a loan agency. They will finance elite vehicles to UBER drivers. Fred
explains his business as follows:
We have signed leases and tomorrow will lend $50 million.
We lend each driver $50,000 for 1 year, and they each buy a vehicle for $50,000.
We recognize some will default-we believe 70 drivers will fail to repay us.
We estimate that vehicles in default can be sold in the secondary market at 78%
of their purchase price.
We also will incur an average loss of $1,375 per defaulted vehicle, to pay an
individual-a repo man—to repossess the vehicle.
We believe we will be paid a 3% premium, relative to the 3% 1-year treasury
rate.
What interest rate will Fred charge his UBER drivers? (Show work)
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