Problem 12-8 A borrower and lender negotiate a $37,000,000 interest-only loan at a 5.0 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMA) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 100 basis points (1.00%) will be added to determine the lender's reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender's reinvestment rate. Required: a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 3 percent? If two-year treasury rates are 4.5 percent, what will be the lender's reinvestment rate? Note: Do not round intermediate calculations. Round "YMF" to the nearest dollar amount. Enter "Reinvestment rate" as a percent rounded to 2 decimal places. YMF Reinvestment rate

Problem 12-8 A borrower and lender negotiate a $37,000,000 interest-only loan at a 5.0 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMA) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 100 basis points (1.00%) will be added to determine the lender's reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender's reinvestment rate. Required: a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 3 percent? If two-year treasury rates are 4.5 percent, what will be the lender's reinvestment rate? Note: Do not round intermediate calculations. Round "YMF" to the nearest dollar amount. Enter "Reinvestment rate" as a percent rounded to 2 decimal places. YMF Reinvestment rate

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 8EP

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