Jasper, Inc. is looking for a five-year term loan of $3 million. Its bank is willing to make the loan. The firm will have to pay a premium of 1.5 percent for default risk and another 0.75 percent for maturity risk. The current prime rate is 7.5 percent. What is the loan rate on this bank loan?

Question

Quizplus · Accepted Answer

The loan rate on this bank loan can be calculated as follows:
Loan Rate = Prime Rate + Premium for default risk + Premium for maturity risk
= 7.5% + 1.5% + 0.75%
= 9.75% 
Therefore, the loan rate on this bank loan is 9.75%. Hence, the best choice is C.