ECO100Assign12 - James E. Pesando Economics 100 Assignment...

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James E. Pesando Economics 100 Assignment #12 Money, Banking, Monetary Policy 1. The simplified balance sheet for a chartered bank is as follows: Assets Liabilities Reserves 400 Deposits 8,000 Loans 8,400 Capital 800 a) If the bank has no excess reserves, what is the bank’s target reserve ratio? b) If there is a new deposit at this bank of $100, what will be the immediate impact on the bank’s balance sheet? Does the bank have excess reserves? What will be the impact on the bank’s balance sheet after the bank re-establishes its target reserve ratio? c) If all banks have this same target reserve ratio, what is the maximum change in the deposits of the banking system as a whole as a result of this new deposit? Why? 2. Simon purchases a bond, newly issued by the Amalgamated Corporation for $1,000. The bond pays $60 to its holder at the end of the first and second years and pays $1,060 upon its maturity at the end of the third year. a) If the interest rate immediately declines to 5 percent, what is the market price of the bond? What if the interest rate immediately increases to 8 percent? b) After receiving the second coupon payment (at the end of the second year), Simon decides to sell his bond in the bond market. What price can he expect for his bond if the 1-year interest rate at that time is 3 percent? 8 percent? 10 percent?
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This note was uploaded on 12/22/2009 for the course BIGBOOK_01 Bigbook_01 taught by Professor Bigbook_01 during the Spring '09 term at University of Toronto.

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ECO100Assign12 - James E. Pesando Economics 100 Assignment...

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