The Bank of Boulder Is Planning on Issuing $45 Million

question 76

Multiple Choice

The Bank of Boulder is planning on issuing $45 million in negotiable CDs.Currently other similar CDs bear an interest rate of 4.75 percent.The bank has estimated that its noninterest costs of issuing these CDs are 0.15 percent,and it expects to pay a deposit insurance premium of 0.0023 per dollar of insured funds.Due to other immediate cash needs,only $40 million of the funds raised will be fully invested.What is the effective cost rate for the Bank of Boulder to borrow in the CD market? (Round your answer to the nearest 0.01 percent)

• A)4.75 percent
• B)4.90 percent
• C)5.10 percent
• D)5.77 percent
• E)None of the options is correct

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Definitions:

Target Return

Is a pricing strategy aimed at achieving a specific return on investment or sales volume goals.

Maximizing Profits

A profit strategy that relies primarily on economic theory. If a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized.

Price Levels

Refers to the average of current prices across the entire spectrum of goods and services produced in the economy, often measured over time to assess inflation or deflation.

Sales

The activities and processes that lead to the selling of goods or services.