The bank has determined the information below for one of its customers. This customer wants to borrow $1,000,000 but will mainta
in an average deposit balance in its account of $200,000. What is the expected net rate of return on this loan
1 answer:
Answer:
C) 10.25 percent
Explanation:
using the attached information, we can prepare the client's income statement:
total revenues $1,026,000
interest revenues $1,000,000
commitment fee $15,000
deposit service fees $5,000
agency fees $6,000
total expenses ($944,000)
deposit interest $30,000
cost of others funds raised $890,000
loan processing costs $8,000
activity and record keeping costs $16,000
net income $82,000
since the customer invested $800,000 (= $1,000,000 - $200,000) and earned $82,000, the net rate of return = $82,000 / $800,000 = 0.1025 or 10.25%
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