13-101 What Is the Expected Return on the Loan at the End

question 36

Multiple Choice

13-101 What is the expected return on the loan at the end of the year if 50 percent of the loan is drawn? Estimate using future values of fee and interest income received,that is,return is defined as all fee and interest income earned at year-end as a percentage of funds used.Assume the cost of funds to the bank is 8 percent.

• A)13.45 percent.
• B)13.57 percent.
• C)13.60 percent.
• D)13.72 percent.
• E)13.90 percent.

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Definitions:

High-low Method

The high-low method is a straightforward way to estimate the variable and fixed components of a cost by using the highest and lowest activity levels and the corresponding total costs.

Machine Hour

A unit of measurement that represents an hour of operation of a machine or equipment.

Fixed Costs

Expenses that do not change in proportion to the level of production or sales, such as rent and salaries.

High-low Method

A technique used in accounting and finance to estimate fixed and variable costs based on the highest and lowest levels of activity.