A man walk into a branch of The Bank of Montreal in Calgary, on March 31, 2014.

Question

A man walk into a branch of The Bank of Montreal in Calgary, on March 31, 2014. He deposits $10,000. The bank pays him interest on his deposit at a rate of 1.5% per year. On exactly the same day, in Montreal, a woman walks into a branch of the Bank of Montreal and borrows $10,000 to start a cookie-making business. The bank charges her 7.5% interest on her loan, which is to be repaid in exactly one year. Assuming that the deposit is not withdrawn, and the loan is not pre-paid, how much “net interest” will the bank earn on this transaction?

Explanation / Answer

Interest To be received from Customer against Borrowings=$10000*7.5%=$750

Interest to be paid to Customer on Deposit =$10000*1.5%=$150

Net interest earnings by Bank ($750-$150)=$600

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