The table below shows the balance sheet of Eubank.If the interest rate on loans is 10 percent,the annual cost to Eubank of holding excess reserves is:
Table 14.1

EUBANK

Question

The table below shows the balance sheet of Eubank.If the interest rate on loans is 10 percent,the annual cost to Eubank of holding excess reserves is:​ ​
Table 14.1
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EUBANK

Quizplus · Accepted Answer

The annual cost of holding excess reserves can be calculated by multiplying the excess reserves by the interest rate on loans. In this case, the excess reserves are $700,000 - $500,000 = $200,000. Therefore, the annual cost of holding excess reserves is 10% x $200,000 = $20,000. However, since the question asks for the cost only to Eubank (not the cost relative to net worth or total assets), the correct answer is C, which is 10% of excess reserves. Therefore, the annual cost to Eubank of holding excess reserves is $20,000.

The Table Below Shows the Balance Sheet of Eubank