Question
Bozo Bank makes a loan to Rizzo Razors. It has a base lending rate on loans of 11% and charges a risk premium of 3%
Bozo Bank makes a loan to Rizzo Razors. It has a base lending rate on loans of 11% and charges a risk premium of 3% on the loan. It does not charge an origination fee, but imposes compensating balances of 10%. Reserve Requirements are 10%, and they do not pay interest.
a. What would be the approximate cost of the loan to Rizzo Razors?
b. What would be the banks approximate return on the loan?
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
