An FI Funds a $5 Million Residential Mortgage in 2017

Multiple Choice

An FI funds a $5 million residential mortgage in 2017 by allocating capital and by issuing demand deposits.The mortgage represents a loan-to-value of 70 percent.The demand deposits have a reserve requirement of 10 percent and a deposit insurance premium of 23 basis points. What is the minimum capital requirement on the mortgage in order for the institution to be adequately capitalized?

A) $0.
B) $400,000.
C) $200,000.
D) $500,000.
E) $5,000,000.