Bank manager advises all of his loan officers

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Q. A bank manager advises all of his loan officers that the average cost of funds for the bank over the past year has been 6%. The bank has borrowed $1 million at 5%, another $1 million at 6% also another $1 million at 7%. Future borrowing costs are expected to continue at 7%. The manager Elucidate however, instructs his loan officers that they are authorized to make loans at interest rates that are equal to or greater than the bank's average cost of borrowing. Elucidate how would you evaluate the bank manager's decision?

Reference no: EM1320237

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