A Corporate Customer Obtains a $1

A corporate customer obtains a $1.5 million loan from a bank. The customer agrees to pay a 6.25 percent interest rate and agrees to make compensating balances of 4 percent of the loan amount. These will be held in noninterest-bearing transactions deposits at the bank for one year. The bank charges a 1 percent loan origination fee on the amount borrowed. Reserve requirements are 10 percent. What is the expected rate of return to the bank (k) (to the nearest basis point) ?

A) 6.95 percent
B) 7.52 percent
C) 7.99 percent
D) 8.01 percent
E) 8.45 percent