Bank lending: Marigold Company wants to borrow money from Howard Bank for a period of five years. The company's credit standing calls for a premium of 1.5 per cent over the prime rate. The current prime rate is 6.5 per cent, the 30-year Treasury bond yield is 5.375 per cent, the three-month Treasury bill yield is 3.525 per cent, and the 5-year Treasury note yield is 4.25 per cent. What is the appropriate loan rate for this customer?

Question

Quizplus · Accepted Answer

To determine the appropriate loan rate, we need to add the credit premium of 1.5% to the current prime rate of 6.5%.

1.5% + 6.5% = 8%

Therefore, the appropriate loan rate for Marigold Company is 8% plus the current prime rate of 6.5%, which equals 8.725%. Thus, the best choice is A.

Bank Lending: Marigold Company Wants to Borrow Money from Howard