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  3. show work 3. eads n bank has issued a one-year

Show work 3. Eads N Bank has issued a one-year loan commitment...

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Accounting

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3. Eads N Bank has issued a one-year loan commitment of $10,000,000 for an up-front fee of 30 basis points. The back-end fee on the unused portion of the commitment is 12 basis points. Eads National requires a compensating balance deposits. The bank's cost of funds is 6.25 percent, the interest rate on the loan is 9 percent, and reserve requirements on demand deposits are 10 percent. The customer is expected to draw down an average of 65 percent of the loan commitment for the year of 8 percent as demand Up-front fees S Interest income S Back-end feeS Total Funds committed s (compensating balances) + (Reserve requirements on demand deposits)-S Expected rate of return- s /s b. Calculate Eads National's expected return on the loan using the Formula without taking future values into consideration. fup front fee f2 back end fee td take down proportion BR borrowing rate. mrisk premium. b compensating balance. RR - reserve requirement. Formula: Expected rate of return- 1+k=1+ ddI-RR Expected rate of return

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