--> Consider a bond that promises to pay (a coupon) $100 one year from now, (a coupon) $100 two years from now, (a coupon) $100 three years from now, and (the principal) $3,000 three years from now. Let's say the market interest rate is 4.5% per year. Assume the bond is risk-free. a. If the bond is offered for $2,800, should you buy the bond at this price?

• a) Explain why or why not
• b) What would be the bond price in market equilibrium?

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Consider a new deposit to the Canadian banking system of $10,000. Suppose that all commercial banks have a target reserve ratio of 20% and there is no cash drain. The following table shows how deposits, reserves, and loans change as the new deposit permits the banks to \"crea \" money. Round A Deposits A Reserves A Loans 1St $10,000 $2,000 $8,000 2nd 3rd 4111 III III III 51:11