Consider the Following Scenario: an FI Charges a 0

Multiple Choice

Consider the following scenario: an FI charges a 0.5 per cent loan origination fee and imposes an 8 per cent compensating balance requirement to be held as non-interest bearing demand deposits. It further sets aside reserves held at the central bank. The value of these reserves is 10 per cent of deposits. The base lending rate is 9 per cent and the credit risk premium for a specific borrower is 3 per cent. What is the ROA on the loan?

A) 12.60 per cent
B) 11.00 per cent
C) 11.50 per cent
D) Not enough information to solve the question.