Adair 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 Adair'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. This year, the revenue is $4.2 million from consumer loans, $2.4 million from home equity loans, and $0.3 million from corporate securities, totaling $6.9 million. Next year, the revenue will be $4.0 million from consumer loans, $2.08 million from home equity loans, and $0.36 million from corporate securities, totaling $6.44 million. The estimated change in revenues is a decrease of $460,000.