Consider an intergalactic economy with two government: the Galactic Empire and the Rebel Alliance. There is a single bank, JarJar Banks, that only works with the Galactic Empire. The bank holds $170B in reserves, $290B in loans, $180B in investments in zero coupon bonds. They have taken in $400B in deposits. All of their investments are in two-year zero coupon bonds sold by the Galactic Empire.

a (4 points) Show the T-Account for this bank. Be sure to calculate bank capital!

b (1 points) If the reserve ratio is 10%, is the bank holding excess reserves? How many of their reserves are required and how many are excess reserves?

c (3 points) The Galactic Empire is considering building a giant space station at a cost of $100B. If the market interest rate on bonds is 5% and the face value of every bond is $1000, what is the price of each bond and how many bonds does the Galactic empire need to sell in order to finance this space station?

d (3 points) If JarJar Bands purchases all of these bonds, what does its T-Account look like? Be sure to calculate bank capital!

e (2 points) After one year the Rebel Alliance attacks and a serious design flaw leads to the destruction of this space station. The Galactic Empire defaults on their bonds used to finance the space station and do not repay the bank. They continue to repay all their other bond obligations. What happens to JarJar Banks? Is it still solvent?

f (2 points) Several years later the Galactic Empire is attempting to build a second space station, having resolved the design flaw with the first. They must also finance the purchase of an adjacent planet to house a shield generator which brings up the total cost of the new project to $110B. Potential lenders are still skeptical of the project and believe that there is a 25% probability that the Galactic Empire will default on their Bond obligations. With this in mind, what is the price that investors are willing to pay for the bond?