## Description

**Week 4 Home work**

Complete the *Week Four *Homework assignments listed below and submit your solutions in a **single document **using the link above. Be sure to use references and document your sources using proper APA style.

**Chapter 17:**

- In order to help fund a loan request of $10 million for one year from one of its best customers, Lone Star Bank sold negotiable CDs to its business customers in the amount of $6 million at a promised annual yield of 3.50 percent and borrowed $4 million in the Federal funds market from other banks at today’s prevailing interest rate of 3.25 percent.

Credit investigation and recordkeeping costs to process this loan application were an estimated $25,000. The Credit Analysis Division recommends a minimal 1 percent risk premium on this loan and a minimal profit margin of one-fourth of a percentage point. The bank prefers using cost-plus loan pricing in this cases. What loan rate would it charge? Show all calculations.

**Chapter 18**

- The Watson family has been planning a vacation to Europe for the past two years. Gratton Savings agrees to advance a loan of $7,200 to finance the trip provided the Watsons pay the loan back in 12 equal monthly installments. Gratton will charge an add-on loan rate of 6%. How much in interest will the Watsons pay under the add-on loan rate method? What is the amount of each required monthly payment? What is the effective loan rate in this case? Show all calculations

**Chapter 19:**

- Light Years Savings Association has just received an offer to merge from Courthouse County Bank. Light Years’ stock is currently selling for $70 per share. The shareholders of Courthouse County agree to pay Light Years’ stockholders a bonus of $10 per share.
- What is the merger premium in this case?
- If Courthouse County’s shares are currently trading for $85 per share, what is the exchange ratio between the equity shares of the two institutions?
- Suppose that Light Years has 20,000 shares and Courthouse County has 30,000 shares outstanding. How many shares in the merged firm will Light Years’ shareholders wind up with after the merger?
- How many total shares will the merged bank have outstanding?

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