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You are the loan officer of bank Y and one of your prime (zero default risk) customers is asking you for a $ 100 million 2 year maturity loan with annual interest payments. The effective annual prime rate is currently at 7% p.a. In order to price the loan realistically (without assuming a flat yield curve), you price the loan using Treasury (T-bills and T-notes) public market information to gather the consensus yield curve. After checking with your money-market broker you find that, • The current market price of the 1-year T-Bill is 95.0000, • The current market price of the 2-year, 8% coupon T-Note is 102.0000 (the coupon is expressed as an effective annual rate payable once per year) • Make a graph of the yield curve up to 2 years • Assuming a zero default risk. What is the price of the commercial loan in % terms ? You are the loan officer of bank Y and one of your prime (zero default risk) customers is asking you for a $ 100 million 2 year maturity loan with annual interest payments. The effective annual prime rate is currently at 7% p.a. In order to price the loan realistically (without assuming a flat yield curve), you price the loan using Treasury (T-bills and T-notes) public market information to gather the consensus yield curve. After checking with your money-market broker you find that, • The current market price of the 1-year T-Bill is 95.0000, • The current market price of the 2-year, 8% coupon T-Note is 102.0000 (the coupon is expressed as an effective annual rate payable once per year) • Make a graph of the yield curve up to 2 years • Assuming a zero default risk. What is the price of the commercial loan in % terms ?
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Answer Formula Used A D E F H 1 Price of 1 year Tbill 2 Yield rate ... View the full answer
Related Book For
Financial Accounting Tools for business decision making
ISBN: 978-0470534779
6th Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
Posted Date:
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