Suppose two firms want to borrow money from a bank for a period of one year. Fir

Question

Suppose two firms want to borrow money from a bank for a period of one year. Firm A has excellent credit, whereas Firm B’s credit standing is such that it would pay prime + 3 percent. The current prime rate is 7 percent, the 30-year Treasury bond yield is 4 percent, the three-month Treasury bill yield is 3 percent, and the 10-year Treasury note yield is 4 percent. What are the appropriate loan rates for each firm? (Round percentage to 2 decimal places, e.g 52.32%.) Firm A loan rate %. Firm B loan rate %.

Explanation / Answer

As Firm A has excellent credit ratings, it would only pay prime rate, while Firm B has to pay prime rate + 3%

Firm A loan rate = prime rate = 7%

Firm B loan rate = prime rate + 3% = 7% + 3% = 10%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.