7.Your bank is providing a $1,000,000 loan to a small business client. Refer to the information below. What interest rate would you need to charge to exactly achieve the banks objective (show workings)?

Banks objective ROE 40% before tax

Loan Interest rate: 3%

Application fee: $ Nil

Marginal cost of non-equity funds: 2%

Annual loan service fees: $4,000

Capital ratio: 8%

Average Demand deposits with bank $300,000

Interest paid on Demand deposits 1%

Average Term deposit $400,000

Interest rate on Term deposits 4%

Reserve requirements on deposits Demand deposit 20%

Term deposit 25%

Cost of providing services (by Loan Dept) $10,000

Loan risk weighting 80%

no more information need be consider just use those number