Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 11, Problem 16P
Summary Introduction

To determine: Firm’s market value capital structure.

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The assets of a bank consist of $300 million of loans to A-rated corporations with the principals being repayable at maturity. The Probability of Default for the corporation is estimated as 0.4% per year. The loan maturities are three years and the LGD is 45%. 1. What is the total risk-weighted assets for credit risk under the Basel II advanced IRB approach? 2. How much Tier 1 and Tier 2 capital is required?
A commercial bank estimates that its fixed rate assets are earning an average interest income of 10%, while its variable rate liabilities are forecast to pay the interest rates below: End of Year 0 1 2 3 4 5 LIBOR 7% 8% 12% 13% 11% Interest Rate Ceiling 10% 10% 10% 10% 10% Suppose it sets up an interest rate ceiling arrangement with another financial institution at 10%. Assuming a notional amount of $50,000,000 and using the LIBOR forecast for each year to discount back the payments incurred, what would be the present value of these payments?
Your company is borrowing $5,800,000 in the form of notes payable from a bank. The bank is charging the company an interest rate of 6% Your company's income tax rate is 27%. What is the net yield and interest rate for the notes payable?
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