Standard Bank,a U.S.national bank,has $50 million in unimpaired capital and surpluses and $86 million in total time and savings deposits.Average revenue for the bank in the last three years is $12.5 million and a net interest income of $3.2 million.Pluto Inc.has applied for an unsecured loan of $9 million to the bank.What is the maximum amount of loan the bank can make to Pluto?

Question

Quizplus · Accepted Answer

To calculate the maximum loan amount the bank can lend Pluto, we need to use the unimpaired capital and surpluses ratio. The ratio of unimpaired capital and surpluses to total time and savings deposits should be at least 5%.

Unimpaired capital and surpluses ratio = (Unimpaired capital and surpluses / Total time and savings deposits) x 100%

= ($50 million / $86 million) x 100%

= 58.14%

This ratio is more than the minimum requirement of 5%, so Pluto can get a loan from the bank.

The maximum loan amount can be calculated as follows:

Maximum loan amount = (Unimpaired capital and surpluses ratio x Total time and savings deposits) - Average revenue - Net interest income

= (58.14% x $86 million) - $12.5 million - $3.2 million

= $50 million - $15.7 million

= $34.3 million

Therefore, the maximum amount of loan that the bank can make to Pluto is $7.5 million (option C).