I was wondering how bank calculates in practice the amount of money it earns after granting a credit (I hope margin is the proper word).
Supposing, that the client took 3-year 10000 euros loan (36 equal monthly installments) with nominal rate equal to 10% (for the simplicity I assume no provision, no insurance required). Is the profit on such a product equal to 10000 minus present value of portfolio made from 36 zero-couponed bonds (I also assume for a while, there is no such thing like counterparty default risk)? That sounds like an answer from book, not practical solution since you should calculate PV of such portfolio each time. Moreover, what is more important, it isn't so simple (since bank have access to much cheaper source of funding = deposits, installments might vary, client may default, etc.)