Union Trust Commercial Bank has issued a one - year $ 1 0 0 million loan commitment
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Question:
Union Trust Commercial Bank has issued a oneyear $ million loan commitment to a customer for an upfront fee of basis points. In the analysis to compute its loan rate for this customer, the bank has determined that its base lending rate will be and its margin to compensate the bank for default risk for this particular customer is The backend fee for nonusage of the commitment is basis points. The bank requires a percent compensating balance in demand deposits on the entire amount of the commitment. The reserve requirement ratio on demand deposits at the central bank is percent. What is the loan rate offered to this customer? What is effective return on the loan to the bank if percent of the loan is taken down? In computing this return, do not take into consideration future values of fee or interest income received. The bank has concluded that the probability of default on this type of credit is and that when a default occurs about will be recovered. What is the expected gross return on the loan in this part, use the effective interest rate computed when the net fees and interest income are evaluated at the end of the year when the loan is due
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
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