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Question
First National Bank is planning to raise $30 million through an offering of negotiable CDs. The current rate for similar CDs is 5.5 percent. Noninterest cost rate for CDs is 0.25 percent. First National pays a deposit insurance premium of 0.0023 per dollar of insured deposits. Due to other immediate cash needs, only $25 million will be fully invested. What is the effective cost rate of borrowing in the CD market for the bank?
A. 6.9 percent
B. 7.2 percent
C. 6.0 percent
D. 5.5 percent
E. None of the options is correct.
Answer
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