A bank has determined that its marginal cost of raising funds is 4.5 percent and

Question

A bank has determined that its marginal cost of raising funds is 4.5 percent and that its nonfunds costs to the bank are 0.5 percent. It has also determined that its margin to compensate the bank for default risk for a particular customer is 0.3 percent. It has also determined that it wants to have a profit margin of 0.3 percent. If this customer wants to borrow $10,000,000, how much in total interest costs will this customer pay in one year?

None of the other responses are correct

$480,000

$510,000

$560,000

$450,000

None of the other responses are correct

$480,000

$510,000

$560,000

$450,000

Explanation / Answer

Total interest:

= $10,000,000×(4.5%+0.5%+0.3%+0.3%)

= $560,000

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