A Bank Has $100 Million in Checking Deposits with Interest

question 59

Multiple Choice

A bank has $100 million in checking deposits with interest and non-interest costs of 8%,$600 million in savings and time deposits with interest and non-interest costs of 12%,and $100 million in equity capital with a cost of 26%.The bank has estimated that reserve requirements,deposit insurance fees and uncollected balances reduce the amount of money available on checking deposits by 20% and on savings and time deposits by 5%.What is the bank's before-tax cost of funds?

• A)13.44%
• B)13.25%
• C)15.33%
• D)19.17%
• E)None of the options is correct

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Definitions:

English Parliament

The supreme legislative body in the United Kingdom, made up of the House of Commons, the House of Lords, and the Sovereign.

Act for the Prevention of Frauds and Perjuries

Historical legislation which aimed at reducing fraud and perjury in legal agreements, emphasizing the importance of written contracts.

Promissory Estoppel

The legal enforcement of an otherwise unenforceable contract due to a party’s detrimental reliance on the contract.

Negligent Misrepresentation

A false statement of material fact made by a party who thinks it is true but who would have known the truth about the fact had he or she used reasonable care to discover or reveal it.