Question

Metrobank offers one-year loans with a 17 percent stated rate, charges a 1/4 percent loan origination fee, imposes a 8 percent compensating balance requirement, and must pay a 5 percent reserve requirement to the Federal Reserve. What is the return to the bank on these loans? (Do not round intermediate calculations. Round your answer to 1 decimal place. (e.g., 32.1))

Answer 1

Given,

State rate = 17% or 0.17

Loan origination fee (OF) = 1/4% or 0.25% or 0.0025

Compensating balance requirement (CBR) = 8% or 0.08

Reserve requirement (RR) = 5% or 0.05

Solution :-