Suppose two firms want to borrow money from a bank for a period of 10 years. Firm A has excellent credit and can borrow at the prime rate, whereas Firm B's credit standing is prime rate plus 2%. The current prime rate is 3.75%, the 30-year Treasury bond yield is 3.54%, the three-month Treasury bill yield is 0.54%, and the 10-year Treasury note yield is 2.24%. What are the appropriate loan rates for both the firms? A. 2.24% for Firm A, 4.24% for Firm B B. 5.45% for Firm A, 7.45% for Firm B C. 3.75% for Firm A, 5.75% for Firm B D. 6.75% for Firm A, 8.75% for Firm B
Macrohedging
Hedging or hedge accounting is a risk-mitigation technique used to protect the current financial position from potential losses. Hedging is often confused with speculating. The major difference between the two is that hedging does not involve guessing, whereas speculation is based on guessing the direction of movement of the underlying asset to book profits.
Finance Mathematics
The area of applied mathematics known as mathematical finance, also known as quantitative finance or financial mathematics is concerned with the mathematical modeling of financial markets. The application of mathematical methods to financial problems is known as financial mathematics. A financial market is a place where people can exchange low-cost financial securities and derivatives. Stocks and bonds, raw materials, and precious metals, both of which are regarded as commodities in the stock markets, are examples of securities. It uses probability, statistics, stochastic processes, and economic theory as methods.
Suppose two firms want to borrow money from a bank for a period of 10 years. Firm A has excellent credit and can borrow at the prime rate, whereas Firm B's credit standing is prime rate plus 2%. The current prime rate is 3.75%, the 30-year Treasury bond yield is 3.54%, the three-month Treasury bill yield is 0.54%, and the 10-year Treasury note yield is 2.24%. What are the appropriate loan rates for both the firms?
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