Which loan strategy would achieve some flexibility; no exposure to credit risk but exposure to repricing risk? Question 22 options: A company borrows $1 million for one year at a fixed rate, then renew the credit annually A company borrows $5 million for five years at a fixed interest rate A company borrows $5 million for five years at a floating rate, LIBOR + 1% A company borrows $1 million for one year at LIBOR + 1%, then renew the credit annually

Which loan strategy would achieve some flexibility; no exposure to credit risk but exposure to repricing risk? Question 22 options: A company borrows $1 million for one year at a fixed rate, then renew the credit annually A company borrows $5 million for five years at a fixed interest rate A company borrows $5 million for five years at a floating rate, LIBOR + 1% A company borrows $1 million for one year at LIBOR + 1%, then renew the credit annually

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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A firm has obtained a 3-year floating rate loan paying a premium of 2%. Given the prime rate is 5%. Immediately after the loan is taken, the prime rate increases to 6%. Which of the following is TRUE? Question 49 options: 1) The interest rate payable is 3%. 2) The interest rate payable is 5%. 3) The interest rate payable is 7%. 4) The interest rate payable is 8%.
Assume a $620,000 loan over a 20 year period at a fixed rate of 5.85%. How much would a borrower save by taking the loan out on a full-capital repayment schedule rather than an Interest Rate basis? a. $164,328.81 b. $327,813.04 c. $0 d. $292,186.96
Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 12% nominal rate; (b) borrow on a 3-month, but renewable on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of the least expensive type of credit, assuming 360 days per year?
Assume a $250,000 mortgage loan with 15-year term. The lender is charging an annual interest rate of 8% and three discount points at origination. Other up-front financing costs paid to other service providers (i.e., not the lender) total $1,000. What is the lender's yield on the loan? Assume monthly payments and no prepayment prior to loan maturity. 8.80% O 8.51% O 0.71% ○ 8.58%
Problem D: Effective cost of Short‐term Loan:ABC would need cash of P5,000,000. Several banks offered different loan conditions. One of the loans has a term of 6 months,interest of 5%, and compensating balance of P50,000Required:1. How much should the face value of the loan be?2. How much is the simple effective annual interest?Problem E: Effective cost of Short‐term Loan: ABC will be acquiring a P4,000,000 loan from XYZ Bank. 13. The detail are 6‐month term, 3% interest, P40,000 bank chargeand P50,000 compensating balance.Required:1. How much is the compound effective annual interest?
Problem E: Effective cost of Short‐term Loan:ABC will be acquiring a P4,000,000 loan from XYZ Bank. 13. The detail are 6‐month term, 3% interest, P40,000 bank chargeand P50,000 compensating balance.Required:13. How much is the compound effective annual interest?
In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $42,000 and the interest rate is 8.50%, the borrower “pays” 0.0850 × $42,000 = $3,570 immediately, thereby receiving net funds of $38,430 and repaying $42,000 in a year. a. What is the effective interest rate on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. What is the effective annual rate on a 1-year loan with an interest rate quoted on a discount basis of 18.50%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
What is the present value of a debt of $1,245 to be paid in 24 months, at a discount rate of 10% per year? Question 4 options: 996 1297 1037 1323
3. Suppose that company B is borrowing $80 million for 5 years at LIBOR minus 20 basis points. Company B uses swap to convert floating rate borrowings into fixed-rate borrowings. / 5% borrow (Libor -0.20%) Company Company. A Libor 国 Swap (cash flow paid) Swap (cash flow received) Year LIBOR Floating Loan Net Cash rate (%) Flow Year 1 4% Year 2 4.5% Year 3 5% Year 4 6% Year 5 6.5% Total Net Cash Flow b) Why do you think that Company B prefers a fixed-rate debt?
A customer asks a bank if it would be willing to commit to making the customer a one-year loan at an interest rate of 6.5% two years from now. To compensate for the costs of making the loan, the bank needs to charge two percentage points more than the expected interest rate on a Treasury bond with the same maturity if it is to make a profit. The bank estimates the liquidity (term) premium for one-, two-, and three-year bond to be 0%, 0.5%, and 1%, respectively. According to the Treasury yield curve below, what interest rate the loan must charge in order for the bank to make a profit on the loan? Should the manager be willing to make the commitment? Choose the closest answer below. Spot rate 6% 5% 4% Term 1-year 2-year 3-year O 7%; Yes O 8%; No O 5%: Yes O 6%; Yes O 7%; No
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%.
The current interest rates for 1 - year T - strips and 1 - year B - rated corporate strips are 3% and 6%, respectively. The rates for their 2 - year strips are 6% and 10%, respectively. If the recovery rate is 40% for the bank, what is the marginal default probability on an 1-year B-rated loan? A. 2.83% B. 1.91% C. 4.72% D. 3.15%

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	A company borrows $1 million for one year at a fixed rate, then renew the credit annually
	A company borrows $5 million for five years at a fixed interest rate
	A company borrows $5 million for five years at a floating rate, LIBOR + 1%
	A company borrows $1 million for one year at LIBOR + 1%, then renew the credit annually