What would we expect the total dollar value of loans to be in a month where there are 42 loans,the interest rate is 7.5%,and the bank spends $30,000 in advertising?
A)$6.442 million
B)$6.558 million
C)$6.288 million
D)$6.112 million

Question

Quizplus · Accepted Answer

We need to use the given information to calculate the total dollar value of loans. We are not given any information about the amount of each loan, so we cannot calculate the total dollar value directly. However, we can use the advertising expense as a proxy for the amount of lending activity in a given month.

Assuming that advertising expenses are proportional to lending activity (i.e. the more the bank advertises, the more loans it makes), we can use the advertising expense to estimate the total dollar value of loans. Let X be the total dollar value of loans in a given month. Then, we can write:

X/30000 = 42

Solving for X, we get:

X = 1260000

But this is the total dollar value of loans without interest. To calculate the total dollar value of loans with interest, we simply need to add the interest earned. The interest earned is:

0.075 X

Substituting X, we get:

0.075 X = 94500

So the total dollar value of loans with interest is:

X + 0.075 X = 1.075 X = 1260000 + 94500 = 1354500

Finally, we need to convert this to millions of dollars:

1.3545 million = $6.288 million (rounded to the nearest thousand)

Therefore, the best choice is C.

What Would We Expect the Total Dollar Value of Loans