A bank expects to raise $30 million in new money if it pays a deposit rate of 7%,$60 million in new money if it pays a deposit rate of 7.5%,$80 million in new money if it pays a deposit rate of 8%,and $100 million in new money if it pays a deposit rate of 8.5%.The bank expects to earn 9% on all money that it receives in new deposits.What deposit rate should the bank offer on its deposits,if it uses the marginal cost method of determining deposit rates?

Question

Quizplus · Accepted Answer

The marginal cost method of determining deposit rates involves setting the deposit rate equal to the rate the bank expects to earn on the new deposits it receives. In this case, the bank expects to earn 9% on all new deposits received. 
Out of the given options, the closest deposit rate to 9% is 7.5%. Therefore, the bank should offer a deposit rate of 7.5% to attract new deposits and ensure profitability.

A Bank Expects to Raise $30 Million in New Money