Question
Banca Monte dei Paschi di Siena has 300 depositors. Each depositor deposits $150 into the bank at time t=0. The bank promises each depositor 8%
Banca Monte dei Paschi di Siena has 300 depositors. Each depositor deposits $150 into the bank at time t=0. The bank promises each depositor 8% interest rate. Each depositor can either withdraw their money at t=1 or t=2. The bank uses the deposits to issue 2-year simple loans. If the bank faces a demand for withdrawal at t=1, it is able to sell its 2-year simple loans at the original loan value. If a depositor believes that 200 depositors withdraw at t=1, what is the depositor's best action?
Withdraw at t=2.
Indifferent between withdrawing at t=1 and t=2.
Withdraw at t=1.
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