TLC Credit, Inc. has $35.0 million in consumer loans with an average interest ra
ID: 2388936 • Letter: T
Question
TLC Credit, Inc. has $35.0 million in consumer loans with an average interest rate of 12.0%. The bankalso 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 TLC's
estimated change in revenues next year?
Explanation / Answer
TLC 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 TLC's
estimated change in revenues next year?
($35.0m x .12) +($30.0m x .OS) +($5.0m x .06)]. [($40.0m x .10) +($32.0m x .065) +($4.0 x .09)]
=$6,900,000· $6,440,000 =$460,000 decrease
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