Your firm has an average collection period of 22 days. The current practice is to factor all receivables immediately at a discount of 1.2 percent. Assume that default is extremely unlikely. What is the effective cost of borrowing?
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- 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 - Bi Wealth-B2Credit Score + B3 Number of Bankruptcics Bo = 10, 109.5 %3D B1 = 0.10 %3D B2 = 0.20 %3D B3 = 0.60 %3D 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%Suppose that you have the capacity to pay, would you rather borrow a loan that is amortized monthly or one that is amotized quarterly? what are your considerations when availing a loan (qualitative or quantitative) discuss.which of the following conditions indicates that a loan assumption is least advisable? An existing loan with a high loan-to-value ratio An existing loan with a due on sale clause A buyer who can make a 10% down payment Is scarcity of mortgage money
- Which of the following statements is CORRECT? Question 2 options: a) The proportion of the payment that goes toward interest on a fully amortized loan increases over time. b) An investment that has a nomiral rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. c) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. d) The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due. e) if a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.Which of the following refers to the ratio of the interest to the principal repayment on an annual unpaid loan? A. it increases as the loan gets older О в. it decreases as the loan gets older O c. it remains constant over the life of the loan O D. it changes according to the level of market interest rates during the life of the loanwhich of the following statements are true? 1. there is an inverse relationship between interest rates and future vales 2. the effective annual interest rate (EAR) will be higher than the annual percentage rate (APR) for a loan that compounds interest annually 3. there is an inverse relationship between present value and interest rates 4. all else equal, the more frequent interest in compounded on a loan, the more interest you will have to pay.
- Consider a $100,000 loan balance (EAD) Suppose a Borrower is in class 5 with a Probability of Default (PD) of 0.04 % and a loan with loan characteristics (LGD) of 50%. Given the credit risk scoring matrix presented in class, what is the expected loss rate and amount for this loan [dollar amount]?Which statement is true about an annual percentage rate (APR)? A) it is of little interest to the average borrower B) it is a simple way to compare all the various elements of different loans C) it is reduced every time you make an payment D) it is equal to the interest rate times the principalGiven the following information, what is expected loss of a $200,000 loan in percent? Probability of default 0.30% Loss given default 55.00% A .15% B .22% C .33% D .17%
- I (Interest rates) 1. Consider a bank account paying interest rate R2 = 4% with semi-annual compounding frequency. What is the equivalent rate R1 with yearly compounding frequency? What is the equivalent rate Rc with continuous compounding? 2. Explain briefly (in words) what are the potential pitfalls of using the Internal Rate of Return (IRR) for the evaluation of investment projects. 3. Consider the following two bonds: bond (A) is a zero-coupon bond with maturity TA and duration DA = TA; bond (B) is a coupon bond with maturity TB > TA and duration DB = TA. Which of the two bonds has a greater convexity? (Justify your answer.)What is the total amount you will pay if you do not pay the loan within the term and meet all the conditions of the loan? Assume that the loan is compounding monthly. First you need to calculate the payment; so what is TVM variable: the number of periods N?Assume you have the following asset and liability in your Balance Sheet:Asset - Bond AModified Duration = 2.6 yearsValue= RM1.5 millionAAFARLiability - Bond BModified Duration = 3.1 yearsValue= RM1.0 milliona. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%?attachment. calculation step by step
