A bank is in the process of renegotiating an $100 million loan. If liquidated, it expects to receive $96 million. The new loan will lower interest rates to 6.5% and extend the maturity to seven years. A grace period of three years is offered during which time only interest will be paid. Principal payments of $25 million are expected at the end of the last four years. An up-front fee of 1% will be collected as part of the renegotiation. a) If the cost of funds to the bank is 8% after rescheduling, is the bank better of with the new terms? Explain. b) What should the minimum up-front fee in percent be in for the bank to reschedule the loan?
A bank is in the process of renegotiating an $100 million loan. If liquidated, it expects to receive $96 million. The new loan will lower interest rates to 6.5% and extend the maturity to seven years. A grace period of three years is offered during which time only interest will be paid. Principal payments of $25 million are expected at the end of the last four years. An up-front fee of 1% will be collected as part of the renegotiation. a) If the cost of funds to the bank is 8% after rescheduling, is the bank better of with the new terms? Explain. b) What should the minimum up-front fee in percent be in for the bank to reschedule the loan?
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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| A bank is in the process of renegotiating an $100 million loan. If liquidated, it expects to receive $96 million. | ||||
| The new loan will lower interest rates to 6.5% and extend the maturity to seven years. A grace period of three years is offered during which time only interest will be paid. | ||||
| Principal payments of $25 million are expected at the end of the last four years. An up-front fee of 1% will be collected as part of the renegotiation. | ||||
| a) If the cost of funds to the bank is 8% after rescheduling, is the bank better of with the new terms? Explain. | ||||
|
b) What should the minimum up-front fee in percent be in for the bank to reschedule the loan?
|
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