The required rate by the bank is equal to ? 

Would the bank accept Mrs. Thompson's request? 

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Mrs. Thompson asks her bank for a personal loan to be contracted for a 1-year period at an interest rate of 12% two years from now. The bank usually asks for a 1.58% additional charge above the expected interest rate on Treasury bond of similar bonds. Assume that: • The 1-year bonds rate is 7%, The 2-years bond rate is 7.8% with a liquidity premium of 0.03%, • The 3-years bond rate is 7.97% with a liquidity premium of 0.06%. Mrs. Thompson asks her bank for a personal loan to be contracted for a 1-year period at an interest rate of 12% two years from now. The bank usually asks for a 1.58% additional charge above the expected interest rate on Treasury bond of similar bonds. Assume that: • The 1-year bonds rate is 7%, The 2-years bond rate is 7.8% with a liquidity premium of 0.03%, • The 3-years bond rate is 7.97% with a liquidity premium of 0.06%.

Answer rating: 100% (QA)

To calculate the required rate by the bank we need to consider the expected intere... View the full answer