The Following Is Information on Current Spot and Forward Term

question 108

Multiple Choice

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually) :

-The duration of a soon to be approved loan of $10 million is four years.The 99^th percentile increase in risk premium for bonds belonging to the same risk category of the loan has been estimated to be 5.5 percent. If the fee income on this loan is 0.4 percent and the spread over the cost of funds to the bank is 1 percent,what is the expected income on this loan for the current year?

• A)$40,000.
• B)$100,000.
• C)$140,000.
• D)$180,000.

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