Matt is client relationship manager at a local bank is trying to make an interest rate offer to his corporate client who has applied for a long-term loan. Client is looking for a 5 year loan. Matt has determined that the default premium for the client should be 3.5%, expected inflation is 2%, and liquidity premium should be 1.2%. His options for base rate are: 1-year nominal rate of 1.4% and 5-year nominal rate of 2.3%.

a) What base rate should Matt choose and why?

b) Given the base rate what interest rate should Matt offer to the client?

Answer rating: 100% (QA)

Matts Loan Offer to Corporate Client a Choosing the Base Rate Matt should choose the 5year nominal r... View the full answer