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Question 3: Assume the following expected income on the loan of $200,000: Interest Income rate on loans = 7% Interest expense rate on deposit accounts that will fund the loan = 5.5% Overhead expense rate to administer the loans = .75% Expected loss rate on the loan = .40% Part A. If the "economic capital" is $7,000 what is the Risk Adjusted Rate of Return?. Input your answer in the .XXXX format Part B. Should the bank make this loan if the expected hurdle rate is 15% ?. Input your answer as either Yes or No

Question 3: Assume the following expected income on the loan of $200,000: Interest Income rate on loans = 7% Interest expense rate on deposit accounts that will fund the loan = 5.5% Overhead expense rate to administer the loans = .75% Expected loss rate on the loan = .40% Part A. If the "economic capital" is $7,000 what is the Risk Adjusted Rate of Return?. Input your answer in the .XXXX format Part B. Should the bank make this loan if the expected hurdle rate is 15% ?. Input your answer as either Yes or No

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question 3: Assume the following expected income on the loan of $200,000: Interest Income rate on loans = 7% Interest expense rate on deposit accounts that will fund the loan = 5.5% Overhead expense rate to administer the loans = .75% Expected loss rate on the loan = .40% Part A. If the "economic capital" is $7,000 what is the Risk Adjusted Rate of Return?. Input your answer in the .XXXX format Part B. Should the bank make this loan if the expected hurdle rate is 15%? . Input your answer as either Yes or No
Transcribed Image Text:Question 3: Assume the following expected income on the loan of $200,000: Interest Income rate on loans = 7% Interest expense rate on deposit accounts that will fund the loan = 5.5% Overhead expense rate to administer the loans = .75% Expected loss rate on the loan = .40% Part A. If the "economic capital" is $7,000 what is the Risk Adjusted Rate of Return?. Input your answer in the .XXXX format Part B. Should the bank make this loan if the expected hurdle rate is 15%? . Input your answer as either Yes or No
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