Tax/Div. Structure and Annuity Problems

  s_available?subcom=detailed&id=341659808 2/4 Paper details 1. Champion Credit Union initiates a credit card product that yields 8.40%, with a funds cost of 3.00% (their profit spread is 5.40%). Legacy Savings Bank enters that market with an equivalent product yield. How low must they price their funding source to be equally able to retain earnings if the marginal tax rate is 20%, and a competitive dividend payout is 30%? 2. If Highland Commercial Bank (HCB) enters that market with a marginal tax rate of 25%, and a dividend payout of 20%, and they can obtain funding at 3.00%, what will be their retained earnings spread if they have the same credit card price of 8.40%? 3. What credit price would HCB have to implement in order to match Champion's retained earnings spread? 4. Mary Welch is retiring this year and wishes to set up an annuity for 20 years of her retirement. MetLife will pay her 3.60% on that annuity, and she will fund it with $400,000. What will be her quarterly income from the annuity? 5. If she wants $9,000 per quarter, what must she put into the annuity, to the nearest dollar?