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Bozo Bank makes a loan to Rizzo Razors. It has a base lending rate on loans of 11% and charges a risk premium of 3%

Bozo Bank makes a loan to Rizzo Razors. It has a base lending rate on loans of 11% and charges a risk premium of 3% on the loan. It does not charge an origination fee, but imposes compensating balances of 10%.

Reserve Requirements are 10%, and they do not pay interest.

a.What would be the approximate cost of the loan to Rizzo Razors?

b.What would be the return to the bank?

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