Question

Conway Savings and Loan pays 0.7% to checking account depositors and 1.6% to holders of certificates of deposit (CDs). 60% of their funding comes from checking accounts, while 40% comes from CDs. CSL specializes in farm equipment loans that charge 6.5% interest. This past year, CSL did $563,000 in farm equipment loans. What was CSL's profit on these farm equipment loans, rounded to the nearest dollar?

Answer 1

Solution:

Total loan = $563,000

60% of the funding is from the checking account mean = 60% * $563,000 = 337,800

40% of the funding is from the checking account mean = 40% * $563,000 = 225,200

Interest rate is 0.7% on checking account and 1.6% on saving account

Total interest payment = 337,800* 0.7% + 225,200 *1.6% = 2364.6 + 3603.2 = 5967.8

Total Interest on income on loan = $563,000 * 6.5% = $36,595

Net profit = Interest income - Interest payout = $36,595 - $5,967.8 = $30,627.2

Net profit = $30,627