Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please explain simply and in details Please fawnser how to fill the whole table 5. Fine-Tuned Savings Association finds that it can attract the following

image text in transcribed

Please explain simply and in details

Please fawnser how to fill the whole table

5. Fine-Tuned Savings Association finds that it can attract the following amounts of deposits if it offers new depositors and those rolling over their maturing CDs at the interest rates indicated below: Expected Volume of New Deposits $10 million 15 million 20 million 24 million 26 million Rate of Interest Offered Depositors 2.00% 2.25 2.50 2.75 3.00 Management anticipates being able to invest any new deposits raised in loans yielding 5.50 percent. How far should this thrift institution go in raising its deposit interest rate in order to maximize total profits (excluding interest costs)? Expected Inflows Total Interest Cost Marginal Interest Cost Marginal Cost Rate Marginal Revenue Rate Exp. Diff. In Marg. Rev and Cost Total Profits Earned Rate Offered on New Funds 2.00% 2.25% 2.50% 2.75% 3.00% $10 $15 $20 $24 $26 $0.3500 5.50% 5.50% 5.50% 5.50% 5.50% Exp. Diff. Expected Inflows Total Interest Cost Marginal Interest Cost Marginal Cost Rate Marginal Revenue Rate Total Profits Earned $10 $15 $20 $24 $26 Rate Offered on New Funds 2.00% 2.25% 2.50% 2.75% 3.00% 0.2000 0.3375 0.5000 0.6600 0.7800 0.2000 0.1375 0.1625 0.1600 0.1200 2.00% 2.75% 3.25% 4.00% 6.00% 5.50% 5.50% 5.50% 5.50% 5.50% In Marg. Rev and Cost +3.50% +2.75% +2.25% +1.50% -0.50% $0.3500 $0.4875 $0.6000 $0.6600 $0.6500 Fine-Tuned Savings Association should raise its deposit rate to 2.75 percent, attracting $24 million in new deposits; because up to that point the marginal revenue rate is greater than the marginal cost rate and total profits are also rising. At 3.0 percent, the marginal cost rate is greater than the marginal revenue rate and total profits fall from a high of $0.66 million back down to $0.65 million

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Healthcare Finance An Introduction To Accounting And Financial Management

Authors: Louis C. Gapenski

4th Edition

1567932800, 978-1567932805

More Books

Students also viewed these Finance questions

Question

Discuss the six purposes of performance management. page 340

Answered: 1 week ago