Question 3

a) Barclays Bank plans to launch a new deposit campaign next week in hopes of bringing in from $200 million to $1200 million in new deposit money, which it expects to invest at a 7.5% yield. Management believes that an offer rate on new deposits of 2.75% would attract $200 million in new deposits and rollover funds. To attract $400 million, the bank would probably be forced to offer 3.25%. Barclays forecast suggests that $600 million might be available at 3.75%, $800 million at 4%, $1000 million at 4.25%, and $1200 million at 4.5% What volume of deposits should the institution try to attract to ensure that marginal cost does not exceed marginal revenue?