Consider the Following Scenario: an FI Charges a 0

question 8

Multiple Choice

Consider the following scenario: an FI charges a 0.5% loan origination fee and imposes an 8% compensating balance requirement to be held as non-interest-bearing demand deposits.It further sets aside reserves held at the central bank.The value of these reserves is 10% of deposits.The base lending rate is 9% and the credit risk premium for a specific borrower is 3%.What is the ROA on the loan?

• A)12.60%
• B)11.00%
• C)11.50%
• D)There is not enough information to solve the question.

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