Suppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratio is 20 percent.AssetsLiabilities and net worth(2)(1)(2)Reserves$ 26,00038,00036,000Checkable deposits$ 100,000SecuritiesLoansInstructions: Enter your answers as a whole number.a. What is the maximum amount of new loans that Big Bucks Bank can make?2$Using the table above, show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additionaamount by inserting the new values into the gray shaded cells of the given table.b. By how much has the money supply changed? a. What is the maximum amount of new loans that Big Bucks Bank can make?$Using the table above, show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additionalamount by inserting the new values into the gray shaded cells of the given table.b. By how much has the money supply changed?$c. How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against thebank? Show the new balance sheet in columns 2 and 2' by inserting the new values into the gray shaded cells of the given table.d. Using the original figures, revisit questions a, b, and c based on the assumption that the reserve ratio is now 15 percent.AssetsLiabilities and net worth(3)(4)(3)(4)Reserves$26,000Checkable deposits$ 100,000Securities38,000Loans36,000

Balance sheets are statements that are prepared by companies in order to know their financial position. By analyzing balance sheet, a company can know if there are sufficient assets to meet its liabilities.Solution: a) To know the amount of maximum loans, first we have to calculate the reserves. This can be done by multiplying the reserve ratio with checkable deposits i.e. 100,000*20% = $20,000 The amount of excess reserves would be the new loans that big bucks would make Hence 26,000 - 20,000 = 6,000 After making the loan, the loans would increase by $6,000 but the position of reserves wont change Hence amount of loans = $6,000 b) The money supply has changed by $6,000. This is as a result of increase in the checkable deposits by $6,000 c) As the checks have been drawn on the loan, the amount of checkable deposits will reduce by $6,000 & also the reserves will also fall by $6,000 The new balance sheet will look as follows: Assets: Reserves 26,000 26,000 20,000 Securities 38,000 38,000 38,000 Loans 36,000 42,000 42,000 Liabilities: Checkable deposits 100,000 106,000 100,000 d) Revisiting the parts a, b & c: As we calculated the reserves previously, similar way we can multiply checkable deposits with the new ratio to find the amount of reserves: 100,000*0.15 =15,000 Next step is to calculate the excess reserves: Excess reserves = 26,000 - 15,000 = 11,000 Hence amount of loan that bank can make would be $11,000 In case of part b, the immediate effect would be increase in the supply of money by $11,000 In case of part c, checkable deposits & reserves will reduce by 11,000 Hence the new balance sheet will be: Assets: Reserves 26,000 26,000 15,000 Securities 38,000 38,000 38,000 Loans 36,000 47,000 47,000 Liabilities: Checkable deposits 100,000 1,11,000 1,00,000

Answered: bie de | bartleby

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

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