Bank Management: Problem 1 A company wants to raise One million dollars in working capital for one year. The company approaches its bank for this loan. Parameters of the Loan: 1. The bank's equity to loan ratio is 7% 2. Reserve requirement is 10% of the deposits 3. Insurance costs are 23 basis points 4. The cost of deposits is 5% 5. The cost of fresh equity is 20% Requirement: a) Calculate the cost of funding for the bank in dollars and as a percentage of the loan amount. b) What is the rate of interest if the bank's want to add 400 bps to the cost of funding? c) Prepare a balance sheet for this loan amount only. d) What is the bank's spread? Bank Management: Problem 1 A company wants to raise One million dollars in working capital for one year. The company approaches its bank for this loan. Parameters of the Loan: 1. The bank's equity to loan ratio is 7% 2. Reserve requirement is 10% of the deposits 3. Insurance costs are 23 basis points 4. The cost of deposits is 5% 5. The cost of fresh equity is 20% Requirement: a) Calculate the cost of funding for the bank in dollars and as a percentage of the loan amount. b) What is the rate of interest if the bank's want to add 400 bps to the cost of funding? c) Prepare a balance sheet for this loan amount only. d) What is the bank's spread