PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 24, Problem 23PS
Summary Introduction
To determine: The good and poor collateral in each cases.
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Assume that there are 2 chartered banks and their T-accounts are below. Suppose that there are
currently deposits of $850,000 in Bank A. Mohit borrows $100,000 from Bank A for a housing deposit to
Cheng-Li. Cheng-Li takes that deposit and puts it into his bank, which is Bank B. The required reserve
ratio is 18% for all banks. Assume that each bank will use the deposits to make loans and not save any
for bank capital or bond purchases.
You can use the following balance sheets, for Bank A and Bank B to help you answer the question:
What are the reserves in Bank A before the money is borrowed from the bank?
Bank A's Balance Sheet
Reserves:
Loans:
Reserves:
Loans:
Answer:
Assets
Assets
Liabilities
Demand Deposits:
Bank B's Balance Sheet
Liabilities
Demand Deposits:
Please answer Problem 11-3. Assess whether Aspero, Inc., meets the credit constraint for the loan from either or both banks. Show computations.
In each pair below, indicate which asset exhibits the greatest credit risk. Describe why.
a. Commercial loan to a Fortune 500 company or a loan to a corner grocery store
b. Commercial loans to two businesses in the same industry; one is collateralized by accounts receivable from sales, while the other is collateralized by inventory as work-in-process
c. Five-year Baa-rated municipal bond or a five-year agency bond from the Federal Home Loan Bank system
d. One-year student loan (college) or a one-year car loan
Chapter 24 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 24 - Bond terms Use Table 24.1 (but not the text) to...Ch. 24 - Bond terms Look at Table 24.1: a. The AMAT bond...Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Prob. 5PSCh. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Sinking funds For each of the following sinking...
Ch. 24 - Call provisions a. Look at Table 24.1. Suppose...Ch. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 14PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Convertible bonds Maple Aircraft has issued a 4%...Ch. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 19PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Prob. 22PSCh. 24 - Prob. 23PSCh. 24 - Bank loans, commercial paper, and medium-term...Ch. 24 - Prob. 25PSCh. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 28PS
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