Caulfield Bank is currently faced with high demand for additional new loans: $40m in household loans, and $20m in business loans. The bank has decided to finance this new pool of loans using the following funding mix:

• Household loans to be funded by savings deposits (20%), fixed deposits (75%), and equity (5%);
• Business loans to be funded by fixed deposits (35%), certificates of deposit (55%), and equity (10%).

Calculate the pooled marginal cost of funds (PMC) for the household loan funding mix and the PMC for the business loan funding mix, in percentage terms, given the following information for Caulfield Bank:

Funding Source

Marginal Cost of Funds (per annum)

Savings deposits

4%

Fixed deposits

7%

Certificates of deposit

9.5%

Equity

15%

Answer rating: 100% (QA)

To calculate the Pooled Marginal Cost of Funds PMC for the household and business loan ... View the full answer