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Assume a basic bank as illustrated in
the table, with bank equity of $50.
RL = interest rate charged on a loan
RD = interest rate charged on a deposit
RG = interest rate on government bonds, which is fixed at 4 percent
| Assets | Liabilities |
| Loans | Deposits |
| Gov't Bonds | Equity |
Your bank is choosing between two alternatives (decision sets A and B), with the following
marketing estimates:
Decision Set A
Choosing RL = 8 percent, then customers will demand $150 of loans.
Choosing RD = 3 percent, then customers will supply $145 of deposits.
Decision Set B
Choosing RL = 9 percent, then customers will demand $120 of loans.
Choosing RD = 5 percent, then customers will supply $120 of deposits.
What is your bank's ROE under decision set A? (State your answer as percent and round to two decimal places; i.e. four and a quarter percent is 4.25)
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