Murphy National Bank Is Thinking About Adding a New Branch

question 86

Multiple Choice

Murphy National Bank is thinking about adding a new branch in a very different market area.It estimates that the new office will have an expected return of 16% with a standard deviation of 8%.Currently,it has an expected return of 12% with a standard deviation of 4%.The correlation between the returns on the new branch and the bank's current returns is estimated to be 0.20.The bank estimates that the new branch will represent 15 percent of the revenues of the bank.What is the expected return of the bank with the new branch?

• A)12.6 percent
• B)15.4 percent
• C)4.6 percent
• D)7.4 percent
• E)8.2 percent

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Definitions:

Compounded Semi-annually

Refers to the process of calculating interest on an investment or loan twice a year.

Compounded Monthly

Interest calculation method where interest is added to the principal balance each month, influencing the next month's interest.

Variable-rate Loan

A loan where the interest rate can change over time based on an underlying benchmark or index.

Compounded Monthly

A method of calculating interest where the earned interest is added to the principal so that the balance doesn't merely grow, it grows at an increasing rate.