ASSUME ALL ANNUITIES ARE ORDINARY ANNUITIES UNLESS I SPECIFICALLY STATE THAT IT IS AN ANNUITY DUE!

1. -Given the 0%/3%/10% Required Reserve bracketed levels in our text as discussed (The Reserve Requirement), if a bank has $107,000,000 of deposited reserves, how much of those reserves may they lend? (Hint, first compute how much they must hold back in reserve)

2. -Assume the Real Risk-Free Rate is 1.5%, T-Bills are paying 2%, T-Bonds are paying 3.7%, High-Quality Corporate Bonds are paying 4.9%, and the rate on the bonds of Harold Sakata Hat Company, a very illiquid bond, is 5.2%. Based on this information, in order, what are the Liquidity Premium of Sakata, and the Inflation Premium? Respectively: