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1. Suppose that JP Morgan Chase sells a $100 million Treasury bill to the US Federal Reserve a. Show the immediate impact of this transaction on the balance sheet of the Fed and on the balance sheet of JP Morgan Chase. Note: Write out your answer in terms of the change in the balance sheet due to this transaction, as discussed in class. b. Assume that before selling the T-bill, JP Morgan Chase had no excess reserves. Suppose that the required reserve ratio is 20%. Also assume that JP Morgan Chase makes the maximum loan it can from the funds acquired by selling the T-bills. Show the effect of this transaction by listing the change in the balance sheet. Note that you are now looking at the change in the balance sheet after making the loan has been made. c. Now suppose that whoever took out the loan in part b) writes a check for this amount and that the person receiving the check deposits it in Wells Fargo Bank. Show the effect of these transactions on the balance sheets of JP Morgan Chase and Wells Fargo after the check has been cleared.
Your portfolio consists of $50,000 invested in stock x and $50,000 invested in stock y. both stock s have an expected return of 20%, betas of 1.6, and standard deviations of 30%. The returns of the two socks are independent, so the correlation coeffi..
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .25 .25 .30 .56 Normal .45 .22 .17 .14 Bust .30 .00 −.30 −.461. If the expected inflat..
Mortgage is categorized as loan between home buyers (borowers) and lenders (banks) directly. Does your categorization of lending decision change when you consider the mortgage that is sold off to investors?
Dernham Inc. has an expected net operating profit after taxes, EBIT (1-T), of $10,300 million in the coming year. In addition, the firm is expected to have net capital expenditures of $1,545 milllion, and net operating working capital (NOWC) is expec..
The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $839.36 per bond. Ca..
A stock has an expected return of 12.2 percent, the risk-free rate is 6 percent, and the market risk premium is 10 percent. What must the beta of this stock be?
KatyDid Clothes has a $120 million (face value) 25-year bond issue selling for 103 percent of par that carries a coupon rate of 9 percent, paid semiannually. What would be Katydid’s before-tax component cost of debt?
Theresa’s Flower Garden has 750 bonds outstanding that are selling for $989 each, 2,500 shares of preferred stock with a market price of $47 a share, and 30,000 shares of common stock valued at $56 a share. What weight should be assigned to the commo..
When the intrinsic value of an asset exceeds the market value
Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $15,000 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $7,000 and $12,000 at the end of Years 1 and 2, respectively..
Consider the purchase of a $10,000 capper, a three year asset, in year zero and its sale in year four for $2,000. Show in the table below, the pre-tax cash flow, depreciation, tax savings from depreciation, gains tax, and after tax cash flow with a t..
What is the value of a bond that has a par value of $1000, a coupon rate of 17.24% (paid annually), and that matures in 8 years. Assume a required rate of return on this bond is 13.53%.
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