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:

Standard Normal Distribution

A normal distribution with a mean of zero and a standard deviation of one, used as a basis in probability theory.

Nominal Data

Nominal data refers to categorical data that can be named or labeled but not meaningfully ordered.

Confidence Interval

A set of values, procured from sample-based observations, deemed likely to hold the value of a non-specified population characteristic.

Data Collected

The information gathered through observation, measurement, or responses, which is analyzed to derive conclusions.