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Question
The Lawrence Bank of Cleveland is planning on issuing $60 million in negotiable CDs. Currently other similar CDs bear an interest rate of 5.15 percent. The bank has estimated that its noninterest costs of issuing these CDs will be 0.2 percent, and expects to pay a deposit insurance premium of 0.0023 per dollar of insured funds. Due to other immediate cash needs, only $50 million of the funds raised will be fully invested. What is the effective cost rate for the Lawrence Bank of Cleveland to borrow in the CD market? (Round your answer to the nearest .01 percent)
A. 6.70 percent
B. 6.42 percent
C. 5.58 percent
D. 5.15 percent
E. None of the options is correct
Answer
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