$(40$pt$)$ NewBank started its first day of operations with $$6$ million in capital. $$100$ million in checkable

deposits is received. Suppose that the required reserve ratio is $8\%.$

$($a$)(10$pt$)$ On the first day, the bank issues a $$25$ million commercial loan and another $$25$ million

in mortgages, with the following terms:

Mortgages: $100$ standard $30-$year fixed$-$rate mortgage loans with a nominal annual rate of

$5\mathrm{.}25\%$ each for $$250,000$

Commercial loan: $3-$year loan, simple interest paid monthly at $0\mathrm{.}75\%$ per month

What does the bank balance sheet look like?

$($b$)(10$pt$)$ On the second day, NewBank decides to invest $$45$ million in $30-$day Treasury bills. The

Treasury bills are currently trading at $$4,986\mathrm{.}70$ for a $$5,000$ face value instrument. How many

do they purchase? What does the balance sheet look like?

$($c$)(10$pt$)$ On the third day, deposits fall by $$5$ million. What does the balance sheet look like? Are

there any problems?

$($d$)(10$pt$)$ To meet any shortfall in the previous question, NewBank will borrow the cash in the

federal funds market. Management decides to borrow the needed funds for the month. The

required yield on a discount basis is $2\mathrm{.}9\%$ annually. What does the balance sheet look like after

the transaction?