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Credit Question - theahmer - 08-17-2010
AoA All!
Can anyone solve this question for me???
"Suppose that a borrower needs Rs 80,000. A bank gives the borrower a choice of two pricing schemes. The first is a Rs 100,000 loan with 20 percent compensating balance requirements priced at 10 percent. The second is an Rs 80,000 loan with no balance requirements priced at 12.5 percent.
A) Calculate the effective cost to the borrower of each alternative.
B) Assume that the bank must hold 12 percent required reserves against customer deposits, calculate the effective return to the bank of each alternative.
C) Which pricing scheme is preferred for the bank?"
Thanks a lot!
- theahmer - 08-19-2010
I am surprised! no one can solve this???