A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22 % compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD = Bo - B, Wealth-B2Credit Score + B3 Number of Bankruptcics Bo = 10, 109.5 %3D B =0.10 %3D Ba = 0.20 %3D B = 0.60 Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% O 12.90%

A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22 % compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD = Bo - B, Wealth-B2Credit Score + B3 Number of Bankruptcics Bo = 10, 109.5 %3D B =0.10 %3D Ba = 0.20 %3D B = 0.60 Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% O 12.90%

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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3. Explain different types of money market instruments. In each of the below cases, which money market instruments would you recommend and why? a. A mutual fund manager has INR 450 million of cash, which he needs to park for a period of less than 180 days, where he will move this to equity b. An oil refining company wishes to borrow INR 1500 million for a period of 90 days to fund its settlement of invoices
The average maturity of its assets is larger than that of its deposits, as is typical of most banks. There is a reinvestment risk O re-finance risk O re-pricing risk default risk
If a bank has a positive repricing gap (RSAs > RSLs), then: Does this bank have reinvestment or refinancing risk? If interest rates increase, net interest income will: A. Reinvestment risk, increase B. Reinvestment risk, decrease C. Refinancing risk, increase D. Refinancing risk, decrease
A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22% compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD=80-8₁ Wealth - B₂Credit Score + B3 Number of Bankruptcies Bo= 10, 109.5 8₁0.10 B₂ = 0.20 B3 = 0.60 Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% 12.90%
Explain different types of money market instruments. In each of the below cases, which money market instruments would you recommend and why?a. A mutual fund manager has INR 450 million of cash, which he needs to park for a period of less than 180 days, where he will move this to equity.b. An oil refining company wishes to borrow INR 1500 million for a period of 90 days to fund its settlement of invoices.
(Related to Checkpoint 7.1) (Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 5.7 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Probability 0.05 D 0.40 Return - 5% 3% 7% 10% (Click on the icon in order to copy its contents into a spreadsheet.) 0.50 0.05 a. The investment's expected return is%. (Round to two decimal places.)
If R = 25%, actual reserves are $2,000 and checkable deposits are $9,000, then the monetarymultiplier is ____, required reserves are $____, excess reserves are $____, and the bankingsystem could potentially expand the money supply by $____.
Δ%(MV) = -MD*Δr When we use this equation to evaluate a loan, this equation does not totally reflect the change in the present value of loans mainly because of the ignorance of which of the following factors a. Convexity b. Maturity c. Duration d. Immunization
XYZ Corporation has a lower and an upper limit for its savings account at P40,000 and P70,000 respectively. Its optimal return point is P50,000. If as of the end of the day, XYZ has a cash balance of P13,000. How much should it request for additional funds or (invest in marketable securities)? Because its cash balance is less than the lower cash limit, XYZ should request for additional funds in the amount of:
We have seen before that money deposited into an account with continuous interest follows the A = Pe' formula. However, this required strict conditions %3D that the money cannot be withdrawn or added to throughout the term of the investment. A more complicated model that allows for deposits/withdraws is: A (t) = Pert + K (ert – 1 | where K is the constant amount deposited (K> 0) or withdrawn (K < 0) each year. Problem: A $270,000 home mortgage with a rate of 5.3 % compounded continuously is borrowed for a period of 30 years. (A) Find the amount, K, that is needed to be paid off each year. (note: your K value should be negative because it is a "withdraw" from the principal, but your answer should be reported as a positive number) To pay off the loan in 30years, $ Number would need to be paid off each year. (round to the nearest cent) (B) Using the value found in part (A), how much money will be spent over the period of the loan repaying the initial balance of $270,000? $ Number (round…
PLEASE SOLVE
A corporate customer obtains a $2 million loan from a bank. The annual spread between the interest rate of this loan and the bank’s cost of fund is 6%, and this bank charges an annual fee of 2.8%. The expected probability of default of this borrower is 9.6%, and the loss given default is 30.7%. Calculate the expected return on this loan based on Moody’s analytics portfolio manager model. Round your answer up to 4 decimal places in decimal term, i.e., enter 0.1234 instead of 12.34%.

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