Question: Suppose that a bank does the following: 1. Sets a loan rate on a prospective loan at 8 percent (where BR = 5% and

Suppose that a bank does the following:
1. Sets a loan rate on a prospective loan at 8 percent (where BR = 5% and ϕ = 3%).
2. Charges a 1/10 percent (or 0.10 percent) loan origination fee to the borrower.
3. Imposes a 5 percent compensating balance requirement to be held as noninterest-bearing demand deposits.
4. Pays reserve requirements of 10 percent imposed by the Federal Reserve on the bank’s demand deposits.
Calculate the bank’s ROA on this loan.

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