The answer is D. Total assets decreasing since they're depreciated. But total expenses will increase for sure in order to replace the depreciated equipment.
The pre-tax cost of debt is yield to maturity of the debt.
The yield to maturity of debt is calculated as -
Yield to maturity = ]Coupon payment + ( Face value - Current price) / Number of years)] / [ ( Face value + Current price) / 2]
Here,
Coupon payment = $ 29.50 (semi-annual, thus 5.9% / 2 * 1000)
Face value = $ 1,000
Price = $ 1,000 * 108% = $ 1,080
Number of years = 12 ( semi-annual, thus 6 years * 2)
Pre-tax cost of debt = [ 29.50 + (1,000 - 1080/12)] / [ (1000+1080)/2 ]
Pre-tax cost of debt = 2.196 %
Annual pre-tax cost of debt = = 2.20 % * 2 = 4.40%
After tax cost of debt = ( 1 - tax rate ) * Annual pre-tax cost of debt
After tax cost of debt = ( 1 - 35%) * 4.40 %
After tax cost of debt = 2.86 %
The formula for the multiplier is 1 / (1 - MPC), whereby MPC represents the marginal propensity to consume. Applying the formula to our case, we get: M (multiplier) = 1/(1-0.8) = 1/0.2 = 5. The multiplier in this economy is therefore 5.
Answer:
loanable amount after Fed operation = $950 M
Securities after fed operation = $50 M
attached below is the T-account table
Explanation:
Given data:
For assets : securities = $100 M , Loans = $800 M
For Liabilities : Constant demand deposit = $1000 M
difference between the assets and liability = $100 M and this makes the Banking system unbalanced hence the Banking system needs the intervention of the Fed. and the reduction in the required reserve ratio from 10% to 5% is the right action
How with the reserve ratio reduced to: 0.05
hence required Minimum required securities after operation = 0.05 * 1000 M = 50 M
Note : Total demand deposits = securities + loanable amount
therefore loanable amount after Fed operation = $1000 M - $50 M = $950
Attached below is the T-table
When both tables are compared it can be seen that there is a significant increase in the loanable amount after the Fed's operations and increase in Loanable amount transcends to increase in Monetary base
Answer:
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