All categories

2 years ago

Why can a bank afford to pay interest rate on a savings account

Business

2 answers:

baherus [9]2 years ago

7 0

Answer:

Banks use the money from borrowers whom they charge at a high interest rate, and gives a lower rate to the people who have a savings account.

Nadusha1986 [10]2 years ago

3 0

How can a bank afford to pay interest? Banks use the money deposited on savings accounts to lend to borrowers, who pay interest on their loans. ... The difference between the money earned as interest on loans, any operating expenses, and the money paid as interest to savings accounts is profit to the banks.

You might be interested in

A bond has a par value of $1,000, a time to maturity of 15 years, and a coupon rate of 7.90% with interest paid annually. If the

Effectus [21]

Answer:

$5.97

Explanation:

In order to determine the capital gain of the bond in a year's time,it is first first of all important to calculate the yield to maturity on the bond which is arrived at by applying the rate formula in excel as follows:

=rate(nper,pmt,-pv,fv)

nper is the number of coupon interest the bond would pay over its entire life of 15 years which is 15

pmt is the annual interest,7.9%*$1000=$79

pv is the current market price of the bond which is $790

fv is the value of $1000

=rate(15,79,-790,1000)=10.79%

Afterwards,the price of the bond in one year' time can then be calculated:

=-pv(rate,nper,pmt,fv)

The variables in the formula are as above except for nper which would reduce by 1 in a year's time

=-pv(10.79%,14,79,1000)

pv=$ 795.97

Hence the capital gain=price now-price one year ago/price one year ago

price now is $795.97

price one year ago was $790

Capital gain=$795.97-$790=$5.97

Capital gain %= ($795.97-$790)/$790=0.76%

8 0

2 years ago

Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $218

lara31 [8.8K]

Answer:

The maximum Southern Tours could pay to acquire the Holiday Vacations is the present is the value of the inflows to be generated from the target company.

The present of the target business is $519,799.59

Explanation:

That amount is the maximum that should be paid for the target business,depending on negotiation skills of Southern Tours' management.

A lower price could be bargained,which better makes the investment more profitable.

Find attached spreadsheet for detailed computations.

Download xlsx

6 0

3 years ago

Consider a corporate bond with a $1000 face value, 8% coupon with semiannual coupon payments, 7 years until maturity, and a YTM

serious [3.7K]

Answer:

$961.42

Explanation:

firstly, we calculate the clean clean price below:

FV= 1,000

PMT= 40 (80 / 2)

I= 4.5 (9 / 2)

N= 14 (7 × 2)

Thus, PV= 948.89

Accrued Interest = coupon × (days since last payment/days in current coupon period)= 40 × (57 / 182) = 12.53

conclusively, dirty price = 948.89 + 12.53 = 961.42

3 0

3 years ago

Accounting question, please help

dangina [55]

Answer:

Accrual basis.

Explanation:

The accrual basis of accounting refers to the accounting method where by revenues are recognized on the profit and loss statement when they are realized and not when the money is received.

8 0

2 years ago

What is true of a perfectly competitive market?

Alexeev081 [22]

The correct answer is B.) The problem of scarcity does not exist.

Because since it is a 'perfectly competitive' market then scarcity shouldnt exist.

-Autumn Leaves

7 0

2 years ago