A borrower and lender negotiate a $38,000,000 interest-only loan at a 6.0 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMF) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 150 basis points (1.50%) will be added to determine the lender's reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender's reinvestment rate. Required: a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 3 percent? If two-year treasury rates are 5.0 percent, what will be the lender's reinvestment rate? Note: Do not round intermediate calculations, Round "YMF" to the nearest dollar amount. Enter "Reinvestment rate" as a percent rounded to 2 decimal places. YUF Reinvestment rate

A borrower and lender negotiate a $38,000,000 interest-only loan at a 6.0 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMF) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 150 basis points (1.50%) will be added to determine the lender's reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender's reinvestment rate. Required: a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 3 percent? If two-year treasury rates are 5.0 percent, what will be the lender's reinvestment rate? Note: Do not round intermediate calculations, Round "YMF" to the nearest dollar amount. Enter "Reinvestment rate" as a percent rounded to 2 decimal places. YUF Reinvestment rate

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

A borrower and lender negotiate a $38,000,000 interest-only loan at a 6.0 percent interest rate for a term of 15 years. There is a
lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield
maintenance fee (YMF) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number
of months remaining on the loan will be selected, to which a spread of 150 basis points (1.50%) will be added to determine the lender's
reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the
lender's reinvestment rate.
Required:
a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 3 percent? If two-year treasury
rates are 5.0 percent, what will be the lender's reinvestment rate?
Note: Do not round intermediate calculations, Round "YMF" to the nearest dollar amount. Enter "Reinvestment rate" as a percent
rounded to 2 decimal places.
YME
Reinvestment rate
%

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A borrower and lender negotiate a $20,000,000 interest-only loan at a 9 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMF) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 150 basis points (1.50 percent) will be added to determine the lender’s reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender’sreinvestment rate. a. How much will the YMF be if the loan is repaid at the end of year 13 if 2-year treasury rates are 6 percent? What if two-year treasury rates are 8 percent?
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