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Question
A corporate customer obtains a $1.5 million loan from a bank. The customer agrees to pay a 6.25% interest rate and agrees to make compensating balances of 4% of the loan amount. These will be held in non-interest-bearing transactions deposits at the bank for one year. The bank charges a 1% loan origination fee on the amount borrowed. Reserve requirements are 10%. What is the expected rate of return to the bank (k) (to the nearest basis point)?
A. 6.95%
B. 7.52%
C. 7.99%
D. 8.01%
E. 8.45%
Answer
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