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A company applied for one million dollars loan from First National Bank.The bank uses the Return on Loan Method with a benchmark of a minimum
A company applied for one million dollars loan from First National Bank.The bank uses the Return on Loan Method with a benchmark of a minimum Required Rate of Return of 6.55% on similar loans. The bank provided the following information: The prime lending rate is 4%; and collects .15% fees on such loans. The company is rated AA with average yield on such rating of 7.5% while the yield on 10-year Treasury is 5%. The bank requires the company to keep 10% of loan as compensatory balance. The Required Reserve on demand Deposits by the Fed is 10%. Using the Return On Loans Method, Should the bank grants the loan or not? Yes grant; Return on loan is 7.3% Do not grant; the Return on Loan is 6.3% Yes grant; Return on Loan is 5.6% Do not grant; Return on Loan is 7.5% A company applied for one million dollars loan from First National Bank.The bank uses the Return on Loan Method with a benchmark of a minimum Required Rate of Return of 6.55% on similar loans. The bank provided the following information: The prime lending rate is 4%; and collects .15% fees on such loans. The company is rated AA with average yield on such rating of 7.5% while the yield on 10-year Treasury is 5%. The bank requires the company to keep 10% of loan as compensatory balance. The Required Reserve on demand Deposits by the Fed is 10%. Using the Return On Loans Method, Should the bank grants the loan or not? Yes grant; Return on loan is 7.3% Do not grant; the Return on Loan is 6.3% Yes grant; Return on Loan is 5.6% Do not grant; Return on Loan is 7.5%
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