The bank cited in the foregoing illustrations wants to charge floating rates for its borrower since it expects interest rate volatility in the near future. The present prime rate is 10 per cent. The bank wants to charge a premium of 400 bps over the prime rate. Which method of arriving at the floating rate should it use-prime plus or prime times? Which pricing method would benefit the bank more when the prime rate
- moves up by 100 bps
- falls by 100 bps