TLC Credit,Inc.has $35.0 million in consumer loans with an average interest rate of 12.0%.The bank also has $30.0 million in home equity loans with an average interest rate of 8.0%.Finally,the bank owns $5.0 million in corporate securities with an average interest rate of 6%.Next year,consumer loans will increase to $40.0 million because of a rate decrease to 10.0%,while home equity loans will increase to $32.0 million at an average interest rate of 6.5%.Unfortunately,the investment in corporate securities will decrease by 20% and the average interest rate will be only 9.0%.What is TLC's estimated change in revenues next year?

Question

Quizplus · Accepted Answer

The change in revenue is calculated by finding the difference in interest income from this year to next year. Current revenue: ($35M * 12%) + ($30M * 8%) + ($5M * 6%) = $7.3M. Next year revenue: ($40M * 10%) + ($32M * 6.5%) + ($4M * 9%) = $6.84M. The change is $6.84M - $7.3M = -$460,000, indicating a decrease.