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This problem illustrates how banks create credit and can thereby lend out more money than has been deposited. Suppose that initially $100 is deposited in a bank. Experience has shown bankers that on average only 8% of the money deposited are withdrawn by the owner at any time. Consequently, bankers feel free to lend out 92% of their deposits. Thus 92% of the original $100 is loaned out to other customers. This $92 will become someone else's income, and sooner or later, it will be redeposited in the bank. Then 92% of $92 is loaned out again and eventually redeposited. of the $84.64, the bank again loans out 92%, and so on. a) Find the total amount of money deposited in the bank as a result of these transactions. b) The total amount of money deposited divided by the original deposit is called the credit multiplier. Calculate the credit multiplier for this example and explain what this number tells us.
Suppose you want to borrow $11,123.57 and will pay back $500 monthly for 2 years. What is the annualized interest rate for this loan?
Daniel Kaffe, CFA of Kendrick Enterprises, is evaluating a 10-year, 8 percent loan with gross proceeds of $5,850,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.5 percent of gross proceeds and will ..
The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $60,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,700 every six months over the subsequent eight years, a..
If your investments earn 10 percent pretax and your marginal tax rate is 30 percent, how much must you save at the end of each of the next six years?
E-Loan, an online lending service, recently offered 36 month auto loans at 3.6% to applicants with good credit ratings. If you have a good credit rating and can afford monthly payments of $347, how much can you borrow from A-loan? What is the total i..
BUACC3701: Financial Management - Evaluate the alternative capital investments. Justify your answers to the following questions with full explanations.
Gillian Stationary Corporation needs to raise 600,000 to improve its manufacturing plant. It has decided to issue a 1000 par value bond with an annual percentage rate of 8.0 percent with interest paid semi annually and a 10 year maturity. Investors r..
The 2000s witness a dramatic increase in Financial Engineering that produced a wide range of new loans and investment products. What is Financial Engineering? Provide example of consumer loan products and investment securities.
A venture recorded revenue of $1 million last year and a net profit of $100,000. Total assets were $800,000 at the end of last year. Calculate the venture's net profit margin. Calculate the venture's asset turnover. Calculate the venture's return on ..
When it comes to social responsibility, while the hope is that corporations will place an emphasis on their reputation and this will create wealth or an organization and that shareholders will perceive actions as what is good to do, in the short run,..
Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of a. 50, which is low by historical standards. b. 25, whic..
When forecasting balance sheet financials, an unusually high projected short-term investment balance suggests which of the following?
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