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Can you answer these 4 questions? All assignments must be submitted on a separate sheet of paper. Assignments submitted with answers written on this page
Can you answer these 4 questions?
All assignments must be submitted on a separate sheet of paper. Assignments submitted with answers written on this page will not be accepted. Please make sure to show all your work and clearly write down your answers. 1. Suppose the following information describes the economy: a. What is the value of Private Savings? b. What is the value of Public Savings? c. What is the Value of National Savings? 2. Bank reserves are $250, the public holds $1000 in currency, and the reserve-deposit ratio is 25%. a. What is the total amount of bank deposits? b. What is the money supply? c. Suppose that the Fed sells $50 worth of bonds in an "open market sale." Assuming that the public does not wish to change the amount of currency it holds, what is the new money supply after this open market purchase? 3. You expect a share of Bank of America to sell for $65 in one year from now and you expect they will pay a $2 dividend per share. What is the most you would pay for the stock today if the interest rate on U.S. government bonds (a safe asset) is 5% and you require a 3% risk premium to hold the stock? 4. Two years ago Sam bought a newly issued three-year US government bond (a risk-free asset) with a principle of $1000 and a 5% coupon rate. This year, one year before maturity, Sam decides to sell the bond and sees that the price people are willing to pay for his bond is now $1019. What must be the interest rate for bonds at the time Sam decides to sellStep by Step Solution
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