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

Question

Quizplus · Accepted Answer

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

Loan rate = Prime rate + Premium
Loan rate = 6.5% + 1.5%
Loan rate = 8.725%

Therefore, the appropriate loan rate for Marigold Corp. from Howard Bank is 8.725%. Option A is the correct answer.

Bank Lending: Marigold Corp