Question: Gross Return on a Loan Problem 1. (A.) What is the gross return on a loan if the bank requires the firm to hold 5.4

Gross Return on a Loan Problem

1. (A.) What is the gross return on a loan if the bank requires the firm to hold 5.4 percent in compensating balances, current Federal Reserves reserve requirements are 5%, charges an origination fee of 0.0155 percent, the relevant firms risk premium is 3.1%, and the LIBOR is 2.6%?

(B.) What is the expected return to the loan if the probability of complete repayment of the loan is projected to be 88 percent?

2. (A.) What is the gross return on a loan if the bank requires the firm to hold 2.2 percent in compensating balances, charges an origination fee of 0.0125 percent, the relevant firms risk premium is 2.7%, and the LIBOR is 2.4%?

(B.) What is the expected return to the loan if the probability of complete repayment of the loan is 82 percent?

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