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Oliga [24]
2 years ago
6

Suppose that in a given month $40 million is deposited into the banking system while $50 million is withdrawn. Assume that the r

eserve requirement is 20 percent and that the banking system had no excess reserves at the beginning of the month. What is the maximum change that can be expected in the money supply as a consequence of these deposits and withdrawals
Business
1 answer:
vladimir1956 [14]2 years ago
8 0

Answer: Money Supply Decrease of $50 million.

Explanation:

$40 million was deposited while $50 million was withdrawn.

The net change in the banking system would therefore be,

= 40 - 50

= -$10 million

($10 million ) means that more money left than came in.

The money supply can be calculated as the net change multiplied by the money multiplier.

The Money Multiplier is denoted as 1/reserve requirement.

Change in Money Supply is,

= -10 million * 1/20%

= -$50 million

Going by the negative number it means that Money Supply reduces by $50 million.

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individuals in different segments should have ______ within the segment and ______ across the segments.
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2 years ago
1. The beta for Eastman Kodak is 1.10. The current six-month treasury bill rate is 3.25%. Estimate the cost of equity for Eastma
Afina-wow [57]

Answer:

1) Cost of equity is 12.501%

2) Price of bond is $935.82

3) Price of semi-annual bond is $934.96

Explanation:

1) Given:

Beta = 1.1

Risk free rate (Rf) = 3.25%

Market risk premium (Rp) = 8.41%

Using CAPM to compute cost of equity:

Re = Rf + β (Rp)

    = 3.25 + 1.1(8.41)

    = 12.501%

2) Price of bond is present value of bond.

Face value (FV) = $1,000

Maturity (nper) = 10 years

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Coupon payment (PMT) = 0.08× 1000 = $80

Discount rate (rate) = 9% or 0.09

Using spreadsheet function =PV(rate,nper,pmt,FV)

Price of bond is $935.82. It is negative as it's cash outflow

3) Price of semi-annual bond is present value of bond.

Face value (FV) = $1,000

Maturity (nper) = 10×2 = 20 periods

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Coupon payment (PMT) = 0.04× 1000 = $40

Discount rate (rate) = 9% ÷ 2 = 4.5% or 0.045

Using spreadsheet function =PV(rate,nper,pmt,FV)

Price of semi-annual bond is $934.96

7 0
3 years ago
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