Consider the following scenario: an FI charges a 0.5 per cent loan origination fee and imposes an 8 per cent compensatin
Posted: Sun May 08, 2022 10:40 am
Consider the following scenario: an FI charges a 0.5 per cent
loan origination fee and imposes an 8 per cent compensating balance
requirement to be held as non-interest bearing demand deposits. It
further sets aside reserves held at the central bank. The value of
these reserves is 10 per cent of deposits. The base lending rate is
9 per cent and the credit risk premium for a specific borrower is 3
per cent. What is the Expected return of this loan if the
probability of payment 95 per cent (round to two
decimals)?
loan origination fee and imposes an 8 per cent compensating balance
requirement to be held as non-interest bearing demand deposits. It
further sets aside reserves held at the central bank. The value of
these reserves is 10 per cent of deposits. The base lending rate is
9 per cent and the credit risk premium for a specific borrower is 3
per cent. What is the Expected return of this loan if the
probability of payment 95 per cent (round to two
decimals)?