Consider the Following Formula for Calculating the Contractually Promised Gross

Multiple Choice

Consider the following formula for calculating the contractually promised gross return on a loan k, per dollar lent: (1 + k) = 1 + [f + (BR + m) ]/ {1 - [b(1 - R) ]}.Which of the following statements is true?

A) The denominator is the promised gross cash inflow to the FI per dollar.
B) The denominator reflects direct fees plus the loan interest rate consisting of both, the base lending rate and the credit risk premium.
C) The formula ignores present value aspects.
D) The FI's net benefit from requiring compensating balances must consider the benefits of holding additional non-interest bearing reserve requirements.