$20,000 is correct
When they ask for the amount the bank can "create" they are really asking for the <u>change in the money supply</u><u>.</u> They are required to reserve 20%, so they can loan out 80%
80% * $5,000= $4,000
Now, the bank can use this $4,000 by loaning it out to other customers and earning interest on those loans. The customers can use the money for investments or spending. So the first little deposit of $5,000 has now spread to a lot more people and created a lot more opportunity for growth. This is known as the <u>multiplier effect.</u> To put the multiplier effect in dollar amounts, we need to know how much we are multiplying by. This is called the <u>deposit multiplyer</u> and the formula is 1/(required reserve ratio). The reserve ratio here is 20% or .2
1/(.2)= 5
Our deposit multiplier which will calculate the multiplier effect on the money supply (aka the amount the bank can "create") is 5
5* $4,000= $20,000
Answer:
A. A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of $3,400 to Accounts Payable.
Explanation:
Recognize the Asset - Office Equipment and Accounts Payable Accounts as these are increasing. De-recognize the Cash Account as this account is decreasing.
Answer:
The value after 4 years = $59,079.75
Explanation:
To calculate the value of the annuity in four years from now
we first calculate the Present value of the annuity pretending we are at the beginning of the payment year
Pv = C[1-1/(1+r)^t]/r
c= $7,000
r = 11% /2 = 0.055
t= 20 *2 = 40
Pv = 112,322.87
Then we make the Pv in 10 years the total amount the investment
A = P(1+r)^t
A = 112,322.87
r = 0.055
t= 10*2 =20
P = 38496.30
After getting the Principal amount of the investment then we can get the value after 4 years making
n = 4*2 =8
A = $59079.75
This is true..............................
