Suppose you have just begun working for a Bank. Your boss requested you to determine...
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- Suppose you have just begun working for a Bank. Your boss requested you to determine the interest loan to be charged in two loan application requests using a Base Rate Pricing method. The first applicant, Client A, has a good credit score that reflects a Default Risk Premium (DRF) of 1.5%. The second applicant, Client B, has a worse credit score, reflecting a Default Risk Premium of 3.75%. Both clients want a 1-year loan, however, but Client A wants a fixed-rate loan, and Client B wants a floating-rate loan. Client A and Client B are individuals without any other credit line, and you decide to add 1.5% as a competitive factor on both clients. Based on the current rates provided below, calculate the loan rates your bank will offer to Client A and Client B. (6 points)
| Banks base rate Now | 2.5% |
| Yield of a 1-year Treasury Note Now | 2.0% |
| Yield of a 1-year TIPS Now | 1.5% |
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