Question: Inspiration Savings Association is considering funding a package of new
Inspiration Savings Association is considering funding a package of new loans in the amount of $400 million. Inspiration has projected that it must raise $450 million in order to have $400 million available to make new loans. It expects to raise $325 million of the total by selling time deposits at an average interest rate of 1.75 percent. Noninterest costs from selling time deposits will add an estimated 0.45 percent in operating expenses. Inspiration expects another $125 million to come from noninterest-bearing transaction deposits, whose noninterest costs are expected to be 2.00 percent of the total amount of these deposits. What is the Association’s projected pooled-funds marginal cost? What hurdle rate must it achieve on its earning assets?
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