Question: Consider the following scenario: an FI charges a 0.5% loan origination fee and imposes an 8% compensating balance requirement to be held as non-interest-bearing demand

Consider the following scenario: an FI charges a 0.5% loan origination fee and imposes an 8% 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% of deposits. The base lending rate is 9% and the credit risk premium for a specific borrower is 3%. What is the ROA on the loan?

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