Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A borrower and lender negotiate a $20,000,000 interest-only loan at a 5 percent interest rate for a term of 15 years. There is a lockout

image text in transcribed

A borrower and lender negotiate a $20,000,000 interest-only loan at a 5 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMA) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 150 basis points (1.50%) will be added to determine the lender's reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender's reinvestment rate. Required: a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 2 percent? If two-year treasury rates are 4 percent, what will be the lender's reinvestment rate? (Do not round intermediate calculations. Round "YMF' to the nearest dollar amount and "Reinvestment rate" to 2 decimal places.) YMF Reinvestment rate %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Ultimate Beginners Guide To Understanding NFTs

Authors: LM Anderson

1st Edition

1739781732, 978-1739781736

More Books

Students also viewed these Finance questions

Question

d. How will lack of trust be handled?

Answered: 1 week ago

Question

b. Does senior management trust the team?

Answered: 1 week ago