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Please show working. A financial institution is planning to give a loan of $3,750,000 to a firm in the pharmaceutical industry. It expects to charge
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A financial institution is planning to give a loan of $3,750,000 to a firm in the pharmaceutical industry. It expects to charge an up-front fee of 0.15% and a service fee of 8 basis points. The loan has a maturity of 10 years. The cost of funds for the institution is 8.2%. The firm has estimated the risk premium on the pharmaceutical sector is approximately 0.35%. The current market interest rates for loans in this sector is 8%. The 99th loss rate for borrowers of this type has historically run at 6% and the dollar proportion of the loans of this type that cannot be recaptured on default has historically been 80%. Should the Fl make the loan? You must show all work to receive full credit. A financial institution is planning to give a loan of $3,750,000 to a firm in the pharmaceutical industry. It expects to charge an up-front fee of 0.15% and a service fee of 8 basis points. The loan has a maturity of 10 years. The cost of funds for the institution is 8.2%. The firm has estimated the risk premium on the pharmaceutical sector is approximately 0.35%. The current market interest rates for loans in this sector is 8%. The 99th loss rate for borrowers of this type has historically run at 6% and the dollar proportion of the loans of this type that cannot be recaptured on default has historically been 80%. Should the Fl make the loan? You must show all work to receive full creditStep by Step Solution
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