Consider the following balance sheet. Liabilities 200 Demand Deposits 100 Saving Deposits 800 0 Assets Required Reserves Excess Reserves Bonds Loans Loans from the FED Bank Capital 800 0 0 300 Assume that the bank pays no interest on Demand Deposits. Furthermore, assume that the market interest rate remains constant and equal to 10%. Assume that the bank holds 8 bonds and each is worth 100 and has a face value of 100. In addition assume that the FED pays 3% in interest on required reserves and pays 1% interest on excess reserves. What is the return on assets in the case of this bank?
Consider the following balance sheet. Liabilities 200 Demand Deposits 100 Saving Deposits 800 0 Assets Required Reserves Excess Reserves Bonds Loans Loans from the FED Bank Capital 800 0 0 300 Assume that the bank pays no interest on Demand Deposits. Furthermore, assume that the market interest rate remains constant and equal to 10%. Assume that the bank holds 8 bonds and each is worth 100 and has a face value of 100. In addition assume that the FED pays 3% in interest on required reserves and pays 1% interest on excess reserves. What is the return on assets in the case of this bank?
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
Section: Chapter Questions
Problem 1PS
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Give typing answer with explanation and conclusion
![Consider the following balance sheet.
Assets
Required Reserves
Excess Reserves
Bonds
Loans
O 9.8%
Assume that the bank pays no interest on Demand Deposits. Furthermore, assume that
the market interest rate remains constant and equal to 10%. Assume that the bank holds
8 bonds and each is worth 100 and has a face value of 100. In addition assume that the
FED pays 3% in interest on required reserves and pays 1% interest on excess reserves.
What is the return on assets in the case of this bank?
8.6%
8.7%
Liabilities
200 Demand Deposits
100 Saving Deposits
800 Loans from the FED
O
Bank Capital
None of the above
800
0
0
300](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00bacea1-443a-47c7-963b-51d2dd735877%2F08dd0acb-49cd-480a-b9b6-0d357e8e00e3%2Ft7e3on_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the following balance sheet.
Assets
Required Reserves
Excess Reserves
Bonds
Loans
O 9.8%
Assume that the bank pays no interest on Demand Deposits. Furthermore, assume that
the market interest rate remains constant and equal to 10%. Assume that the bank holds
8 bonds and each is worth 100 and has a face value of 100. In addition assume that the
FED pays 3% in interest on required reserves and pays 1% interest on excess reserves.
What is the return on assets in the case of this bank?
8.6%
8.7%
Liabilities
200 Demand Deposits
100 Saving Deposits
800 Loans from the FED
O
Bank Capital
None of the above
800
0
0
300
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