# Term risk premium for longer term credit libor libor

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Term Risk Premium for Longer Term Credit LIBOR: LIBOR- based loan rate = LIBOR + Default-risk premium + Profit margin Below-prime market pricing: Loan Interest Rate = Interest Cost of Borrowing in the Money Market + Markup for Risk and Profit Customer Profitability Analysis : - N etbefore taxrate of return ¿ the lender ¿ the wholecustomer relationship = ¿ loans other services provided ¿ thisc - B efore tax rateof return costs ¿ the entirelender customer relationship = Revenue expected Cost expected Net amount of allloanablefunds suppled cust
- N et investable funds for thelender = Customer ' s averagedeposit balance Average amount of float the account −( - A mount of earningscredited ¿ the customer = Annual earningsrate× Fractionof the year funds areavailable ¿ thede VI. Chap 18: Consumer Loans Cost-plus model : Loan Rate Paid by Consumer = Lender's Cost of Raising Funds + Nonfunding Operating Costs + Risk Premium for Customer Default + Risk Premium for Time to Maturity + Desired Profit Margin Simple Interest: Interest owned = Principal x Rate x Time Discount rate: Amount received = Amount paid back 1 + i Add-on rate: Calculate monthly payment = rate×amount borrowed + amount borrowed months Effective Rate = 0 t Monthly payment ( 1 + i ) t = amountborrowed Rule 78: Rate = number of moth ¿ ¿ 1 + 2 + 3 ¿ ¿ Customer’s monthly mortgage payment = Principal × Annualrate 12 × ( 1 + Annualrate 12 ) 12 t ( 1 + Annualrate 12 ) 12 t 1 Dollar amount of points charged on a home mortgage loan = Amount of the loan x Number of points charged by the lender

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• Fall '19
• Interest, Generally Accepted Accounting Principles

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