Friendly Financial has $160 million in consumer loans with an average interest r

Question

Friendly Financial has $160 million in consumer loans with an average interest rate of 12.5 percent. The bank also has $96 million in home equity loans with an average interest rate of 8 percent. Finally, the company owns $20 million in corporate securities with an average rate of 5 percent.

Managers at Friendly Financial estimate that next year its consumer loan portfolio will rise to $168 million and the interest rate will fall to 10.5 percent. They also estimate that its home equity loans will fall to $80 million with an average interest rate of 9 percent, and its corporate securities portfolio will increase to $25 million with an average rate of 6 percent.

Required:

Estimate Friendly Financial’s revenues for the coming year. (Enter your answer in thousands of dollars.)

Explanation / Answer

Calculation of Interest Revenue:

                                Portfolio Amount          Interest Rate                  Income
Consumer loan            $168 million                     10.5%

Portfolio Amount Interest Rate Income (in thousand) Consumer loans $168 million 10.5% $17640 Home equity loans $80 million 9% $7200 Corporate securities $25 million 6% $1500 Total $26340

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