Question

4- Assume that you can borrow $175,000 for one year from a local commercial bank a. The bank loan officer offers you the loan if you agree to pay $16,000 in interest plus repay the $175,000 at the year. What is the percent interest rate or effective cost? discount loan at 9 percent interest. What is the percent interest rate or effective cost? c. Which one of the two loans would you prefer? 5- Assume that the interest a. If the expected real rate of interest is 3 percent, determine the inf rate on a one-year Treasury bill is 6 percent and the rate on a two-year Treasury note is 7 percent inflation premium on the Treasury bill. b. Ifthe maturity risk premium (MRP) is expected to be zero, determine the inf ation premium on the T maturity risk premium (MRP) is expected to be zero, determine the inflation premium on the 1T c. What is the expected inflation premium for the second year? 6- The SIMPLE financia non-checkable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank public amounts to 15 I system has these relationships: The ratio of reserves to total deposits is 12 percent, and the ratio of percent of checkable deposits. The rasio of government deposits to checkable deposits is 8 percent, and the monetary base is $300 million. a. Determine the size of the MI money multiplier and the size of the money supply b. If the ratio of currency in circulation to checkable deposits were to drop to 13 percent while the other ratios remained the same, what would be the impact on the moncy supply? c. If the ratio of government deposits to checkable deposits increases to 10 percent while the other ratios remained the same what would be the impact on the money supply? 7- The followings are recent balance sheet accounts for Prime National Bank Assets: $17 m. $40 m. $45 m. S16 m. $5 m. $15 m. $138 milliorn Cash assets: Loans secured by real estate: Commercial loans: Government securities owned Goodwill: Bank fixed assets Total assets: Liabilities: $50 m. $66m. $15 m. S2m. $5m. Demand deposits: Time & savings deposits Federal funds purchased: Trust-preferred securities: Owners' capital: Total liabilities and owners capital: $138 m. Note: The bank has loan-loss reserves of $10 million.

Answer 1

Requirement-(al: $16,000 $175,000 Interest paid for one year Amount borrowed So, effective interest rate charged 9.14% [$16,000 / $175,000] When discounted rate is availed, borrower will receive an amount equal to amount borrowed rnornlanunt borouedbutepvintbunt Tsut Amount borrowed Loan interest rate Net proceeds received by the borrower$159,250 $175,000 $15,750 [$175,000 x 996] So, effective interest rate charged 9.89% [$15,750/$159,250] Requirement-(c: Option-(a) is preferred because effective interest rate is less than option-(b)