Question: Suppose a bank estimates that the marginal cost of raising
Suppose a bank estimates that the marginal cost of raising loanable funds to make a $10 million loan to one of its corporate customers is 4 percent, its nonfunds operating costs to evaluate and offer this loan are 0.5 percent, the default-risk premium on the loan is 0.375 percent, a term-risk premium of 0.625 percent is to be added, and the desired profit margin is 0.25 percent. What loan rate should be quoted to this borrower? How much interest will the borrower pay in a year?
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