pose the central bank wishes to increase the money supply by $500 million s so by purchasing one-year zero coupon bonds from an economic agent to ease bank reserves. If the central bank buys bonds with an interest rate of many bonds must they buy to reach their targeted increase in the money s sume the required reserve ratio is 10% and commercial banks fully loan out. will need to use the money multiplier in this answer as well as bond pricing upon bond is a promise to pay $1000 in one year. Assume there is no currene

pose the central bank wishes to increase the money supply by $500 million s so by purchasing one-year zero coupon bonds from an economic agent to ease bank reserves. If the central bank buys bonds with an interest rate of many bonds must they buy to reach their targeted increase in the money s sume the required reserve ratio is 10% and commercial banks fully loan out. will need to use the money multiplier in this answer as well as bond pricing upon bond is a promise to pay $1000 in one year. Assume there is no currene

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Bill Adams wants to compute the bank discount yield of a T-bill. A T-bill with a face value of $100,000 is selling for $96,500. If there are 120 days until maturity, 1) What is its bank discount yield? 2) What is its holding period return? 3) What is its effective annual rate of return? 4) What is the money market yield?
Question 1. Suppose that the central bank buys $6 billion of bonds on the open market and the banks wish to hold reserves of 8 percent. A. What is the largest amount the money supply could ultimately increase? Explain. B. What would the money multiplier be in this case? Question 2. Suppose the government multiplier is 3.5, the money multiplier is 4.5, the income multiplier with respect to the money supply is 2.5 and the marginal tax rate is 20 percent. What is the ultimate change in the government's budget deficit G – T if government spending increased by $10 billion and at the same time the central bank increased the money supply by $5 billion? (Remark: not all the information stated above is needed to answer this question. To answer this question you need to figure out by how much output changes, then figure out the change in tax revenue). Question 3. Consider an economy in which the real level of income is $500B in 2010 dollars, the government multiplier is 3, the…
The federal funds rate set by the Fed is 4%, and inflation is 3%. The real interest rate that people can borrow money at is 1.5%. Draw an MP curve. Determine the risk premium. Label it and the risk-free interest rate on your graph Illustrate how the MP curve will change if the risk premium increased. Please type out your answer!!
3) Suppose there is a 10% reserve requirement, and the bank has the following Balance Sheet Assets Reserves Loans Securities Liabilities 55M Deposits 250M Bank Capital 45M 350M 50M Now, let's suppose there is a deposit outflow of $60 million. If the bank only finances its reserve shortages by borrowing from the Federal Reserve, show the bank's balance sheet after the deposit outflow and receiving the loan from the Fed.
Suppose two firms want to borrow money from a bank for a period of one year. Firm A has excellent credit, whereas Firm B’s credit standing is such that it would pay prime + 3 percent. The current prime rate is 6.55 percent, the 30-year Treasury bond yield is 4.30 percent, the three-month Treasury bill yield is 3.47 percent, and the 10-year Treasury note yield is 4.23 percent. Now suppose that Firm B decides to get a term loan for 10 years. What is the loan rate for the firm? Firm B's loan rate % How does this affect the company’s borrowing cost? Company's borrowing cost will (increase/ remain the same / decrease) .
A corporate customer obtains a $2 million loan from a bank. The annual spread between the interest rate of this loan and the bank’s cost of fund is 6%, and this bank charges an annual fee of 2.8%. The expected probability of default of this borrower is 9.6%, and the loss given default is 30.7%. Calculate the expected return on this loan based on Moody’s analytics portfolio manager model. Round your answer up to 4 decimal places in decimal term, i.e., enter 0.1234 instead of 12.34%.
}If the capital reserve ratio has dropped from 6% to 4% and assuming a $1 million deposit, calculate the new deposit ratio that banks can lend out?
Consider a bank policy to hold reserves equal to 15% of bank deposits. The bank currently has $25 million in deposits and holds $1 million of excess reserves. What is the required reserve on a new deposit of $500,000? Please answer in dollars. If the Fed decides to conduct contractionary monetary policy by selling $250 million in UST bonds, how much will the money supply change by if the required reserve ration is 15%? Please express you answer in millions of dollars.
If JFINEX Bank has 10B in Peso Savings deposits, 10B worth of dollar deposits, 20B in Peso Demand deposits, and 30B in Peso Time Deposits, what is the maximum amount the bank can lend after complying with the current local reserve requirement set by the BSP? 7.20B 61.60B 8.40B 52.80B Which of the following scenarios is considered an expansionary monetary policy? A hike in reserve requirement of banks Policy rate cut by the central bank Decrease in income tax collection Both B and C Mr. JFINEX is short of funds of $10MM. He can borrow from the following counterparties with their respective bid-offer quotations applicable for O/N or 1 week: Bank A: 0.10% - 0.16%; Bank B: 0.13% - 0.17%; Bank C: 0.12% - 0.15%. At what rate will he borrow assuming there is no borrowing limit? 0.15% 0.13% 0.10% 0.17% You want to buy 30MM pesos worth of RTB 10-21. At what rate can you buy the said GS to minimize cost given quotes from the following counterparties? Bank A: 3.60% –…
I (Interest rates) 1. Consider a bank account paying interest rate R2 = 4% with semi-annual compounding frequency. What is the equivalent rate R1 with yearly compounding frequency? What is the equivalent rate Rc with continuous compounding? 2. Explain briefly (in words) what are the potential pitfalls of using the Internal Rate of Return (IRR) for the evaluation of investment projects. 3. Consider the following two bonds: bond (A) is a zero-coupon bond with maturity TA and duration DA = TA; bond (B) is a coupon bond with maturity TB > TA and duration DB = TA. Which of the two bonds has a greater convexity? (Justify your answer.)
4. Suppose you run a firm and have access to an investment technology that delivers y = 1.03 · I in real terms, given investment I. Suppose you have 1, 000GBP in cash. Suppose banks’ deposits yield 2% interest rate. Will you invest your cash holding in the investment technology? What if you had no cash, but could borrow from the bank at the same interest rate as the return on deposits? Suppose you now have access to the four investment projects from Table 1. Which project(s) will you finance if r = 0.05? Table 1: Possible investment projects Project Investment needed Pay off A. 1000。 1038 B。 2500。 2600 C。 100. 110 D. 160. 220
A single bank is considering two options: First, it can make a $200,000 mortgage loan for a customer with a 10 percent probability of default, or second, it can buy a $200,000 security representing a bundle of 100 mortgage loans, which break down as shown in the table below. You can calculate the weighted risk for each firm category by multiplying the percentage of loans represented (for example, the first tier includes 25 loans, which is 25/100 = 25% of the total) times the probability of default on loans of that category. Instructions: Round your answers to three decimal places. a. Calculate the weighted risk for each type of loan, then add together the weighted risks to come up with an overall expected default risk for this financial investment. Number of Loans 25 25 15 35 Probability of Default (%) 3 12 1.5 5 Weighted Risk % 8 % 1%. Adding together the weighted risks, the expected default risk for the security is: b. If the bank is willing to take on only projects for which the…

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