A company wants to borrow six million dollars for one year. Various aspects of the loan is

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Question:

A company wants to borrow six million dollars for one year. Various aspects of the loan is as under:

1. Equity to loan ratio is 8%

2. Reserve requirement is 125

3. The average cost of deposit is 6% and the average cost of equity is 22%.

4.insurance cost is 25 bps.

Required:

Calculate the cost of funding as explained in the class with all necessary steps. Give the cost as a percentage of the loan amount. Derive the interest rate by adding four percentage point to the cost of funding. Bank's spread and the separate balance sheet for this loan.