When Calculating Its Cost of Funds, Should a Bank Use

question 37

Essay

When calculating its cost of funds, should a bank use average or marginal costs? Why?

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Definitions:

Amortization

The process of gradually writing off the initial cost of an intangible asset over a period of time, reflecting its consumption, expiration, or obsolescence.

Accounting Period

The time period covered by the financial statements.

Maturity Value

The amount payable to an investor at a security's maturity date, including both the principal and any final interest payments.

Bonds

Long-term debt instruments issued by corporations or governments to raise capital, with the issuer promising to pay back the principal along with interest on specified dates.