The Smart Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.9 annual percentage rate. What is the maximum rate the bank can actually earn based on the quoted rate?
A) 7.90%
B) 8.18%
C) 8.20%
D) 8.22%
E) 8.39%

Question

Quizplus · Accepted Answer

The maximum rate the bank can actually earn based on the quoted rate can be calculated using the formula (1 + quoted rate)/(1 - reserve ratio) - 1. Assuming a reserve ratio of 10%, the maximum rate the bank can earn is (1 + 0.079)/(1 - 0.10) - 1 = 0.0822 or 8.22%. Therefore, the correct answer is D).

The Smart Bank Wants to Appear Competitive Based on Quoted