In order to help fund a loan request of $50 million for one year from one of its best customers, Maize Bank will borrow $25
In order to help fund a loan request of $50 million for one year from one of its best customers, Maize Bank will borrow $25 million by selling CDs at a promised annual yield of 3.80 percent and also borrow $25 million in the Federal funds market at todays prevailing interest rate of 3.60 percent. Credit investigation and recordkeeping costs to process this loan application were an estimated $80,000. The Credit Analysis Division recommends a minimal 1 percent risk premium on this loan and a minimal profit margin of 0.5 percent. Using the cost-plus loan pricing model, what loan rate should be charged? (Show sufficient detail in order to receive credit)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started