Construction loans pay off in 1 year and earn 6%. Home loans are long term assets and earn 4%. Demand deposits cost 2%. What is the highest rate the bank can pay on time deposits to achieve the required return of 7% to bank shareholders? A.8.33% B. ?210,000 C. 6.78% D. 5.8% E. 4%
Assets Liabilitites
Construction loans ? 25 Demand deposits 35
Home Loans 75 Time Deposits 62
Totals 100 Equity Capital 3
Total 100