C Bank holds a $100 million loan to Country X. The loans are being traded at bid-offer prices of 91-93 per 100 in the London secondary market.
a. If C has an opportunity to sell this loan to an investment bank at a 4 percent discount, what are the savings after taxes compared with the revenue from selling the loan in the secondary market? Assume the tax rate is 40 percent.
b. The investment bank in turn sells the debt at a 6 percent discount to a real estate company. What is the profit after taxes to the investment bank?