Question
CAL Bank plans to launch a new deposit campaign next week in hopes of bringing in from GHS10 million to GHS 60 million in new
CAL Bank plans to launch a new deposit campaign next week in hopes of bringing in from GHS10 million to GHS 60 million in new deposit money, which it expects to invest at a 4.25 percent yield. Management believes that an offer rate on new deposits of 2 percent would attract GHS 10 million in new deposits and rollover funds. To attract GHS 20 million, the bank would probably be forced to offer 2.25 percent. CALs forecast suggests that GHS 30 million might be available at 2.50 percent, GHS 40 million at 2.75 percent, GHS 50 million at 3.00 percent, and GHS 60 million at 3.25 percent. What volume of deposits should the institution try to attract to ensure that marginal cost does not exceed marginal revenue? Use the following headings to show the possible outcomes: Expected Inflows, Rate Offered on New Funds, Total Interest Cost, Marginal Interest Cost, Marginal Cost Rate, Marginal Revenue Rate, Exp. Diff. In Marg. Rev and Costs, Total Profits Earned.
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