Chase Bank holds a $200 million loan to Argentina. The loans are being
QUESTION
Chase Bank holds a $200 million loan to Argentina. The loans are being traded at bid-offer prices of 91-93 per 100 in the London secondary market.a. If Chase has an opportunity to sell this loan to an investment bank at a 7 percent discount, what are the savings after taxes compared to selling the l¦
The price that Chase could obtain from the investment bank is $200(1 0.07) = $186m. The tax loss benefit is $14m x 0.40 = $5.6m, for a net price of $186m $5.6 = $191.60. In the secondary market, it would have had to sell the loans at 91cents on the dollar or $182 million. The tax loss¦
fit is $18m x 0.40 = $7.2m for a net price of $189.20. Therefore, the savings from selling the loans to the investment bank as opposed to the secondary market is $191.60 $189.20 = $2.4 million.
ANSWER:
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