Question
ATI Mining has applied for a loan of $8 million from Bank United. The typicial servicing fee that Bank United charges is 80 basis points.
ATI Mining has applied for a loan of $8 million from Bank United. The typicial servicing fee that Bank United charges is 80 basis points. The maturity of the loan will be 9 years with a duration of 7.6 years. Bank United has a cost of funds (the RAROC benchmark) of 11 per cent. The credit analyst of the bank estimates that the maximum change in the risk premium for the iron ore sector is around 5.0 per cent, based on three years of historical data. The current market interest rate for loans in the iron ore sector is 13.6 per cent. Explain if Bank United should approve this loan.
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