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Consider the following balance sheet for the First National Bank (M stands for millions of




1. (12 minutes);Consider the following balance sheet for the First National Bank (M stands for millions of;dollars, assume no assets or liabilities except for those listed);Assets;Liabilities;Reserves;$ 14M;Checking Deposits;Govt. Bonds;$ 25M;Savings Deposits;Loans;$380M;Bonds Issued by the Bank;$52M;$112M;$215M;Bank Capital;?;Assume that the reserve requirement (R) is 12%.;a. (3 minutes);Find the bank's capital.;b. (3 minutes);Find E, the proportion of deposits that the bank is holding as "excess reserves." Show;how you arrived at your answer. Round your answer to the nearest whole percent.;c. (6 minutes);If $75M worth of the bank's loans default, show the bank's balance sheet after;the default.;2. (12 minutes);In the country of Extensia, the central bank engages in open market operations, using;Extensia government bonds (E-Bonds). The most recent data show the following values for;key monetary variables (B stands for billions of dollars);Cash held by the public;Checking deposits;R;E;a.;$2B;$15B;7%;5%;(3 minutes);Calculate the money multiplier. Round your answer to two decimal places.;Now assume that the Extensia Central Bank buys $2B worth of T-Bonds.;b. (4 minutes);Will the money supply in Extensia increase or decrease? Explain.;c. (5 minutes);Assuming no change in E (the proportion of deposits that banks want to hold as excess;reserves), or R (the proportion of deposits that banks are required to hold), and no change;in cash held by the public, what will be the new money supply in Extensia after the;central bank's action? Show your calculations.;3. (5 minutes);By one measure, the stock market has had an average annual return of around 18% in the five;years from the beginning of 2009 to the end of 2013.;If you had invested $10,000 in the market at the beginning of 2009, how much would you;have had by the end of 2013, exactly five years later?;Assume you did not make any additions or withdrawals after your initial investment, and that;your return was compounded annually. Round your final answer to the nearest cent.;4. (10 minutes);Find the present value (PV), rounded to the nearest cent, of $1,400 you expect to receive;exactly three years from today, assuming a discount (or interest) rate of 3% per year.;5. (21 minutes);a. (15 minutes);Prescott Corporation is considering investing in a project which requires an outlay of $30;million in cash at the start, but is expected to generate revenues of $15 million at the end;of one year, $8 million at the end of two years, and $15 million at the end of three years.;The project will then be terminated, with no further revenues or costs.;There are no further costs after the initial outlay of $30 million.;Should this project be undertaken if the opportunity cost of Prescott's capital is 12%?;Why or why not?;(Show all calculations you used to arrive at your answer.);[Additional page-if needed-for calculations for part 5a.];b. (6 minutes);Using the numbers given in part (a) for revenues and costs, set up an equation you;would use to find the project's internal rate ofreturn (IRR).. You do not need to solve the equation, just set it up.


Paper#29218 | Written in 18-Jul-2015

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