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Giant National Bank has placed a group of 10000 consumer loans bearing an average expected gra& annual yield of 8 percent in a package to be security zecl The investment bank advising Giant estimate

Giant National Bank has placed a group of 10,000 consumer loans bearing an average expected gra& annual yield of 8 percent in a package to be security zecl, The investment bank advising Giant estimates that the securities will sell at a slight discount from par that results in a net interest cost to the issuer of 9.percent. Based on recent experience with similar types of loans, the bank expects 3 percent of the packaged loans to default without any recovery for the lender and IS agreed to set aside a cash reserve to cover this anticipated loss. Underwriting and advisory services provided by the investment banking firm will cost 0.5 percent. Giant will also seek a liquidity facility, costing 0.5 percent, and a credit guarantee if actual loan defaults should exceed the expected loan default rate, costing 0.6 percent. Please calculate residual income for Oiant from this loan security ration.

Apr 24 2020 View more View Less

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