A bank offers a corporate client a choice between borrowing cash
at 9% per annum and borrowing Bitcoin at -5% per annum. The
risk-free interest rate is 3% per annum, and storage costs are 7%
per annum. The interest rates on the two loans are expressed with
annual compounding. The risk-free interest rate and storage costs
are expressed with continuous compounding. Suppose that the price
of Bitcoin is $58,000 and the corporate client wants to borrow
$1,160,000.
a. Discuss whether the rate of interest on the Bitcoin loan is
too high or too low in relation to the rate of interest on the cash
loan.
b. What is the correct rate of interest for Bitcoin
loan?
A bank offers a corporate client a choice between borrowing cash at 9% per annum and borrowing Bitcoin at -5% per annum.
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A bank offers a corporate client a choice between borrowing cash at 9% per annum and borrowing Bitcoin at -5% per annum.
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