Question

19.)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 200 depositors withdraw at t=1, what is the total loan payments (in $) the bank will receive at t=2? Round your answer to at least 2 decimal places.

Answer 1

(I am assuming that the bank gives loan at the same interest rate that is 8% as no information is given on rate of interest for loan)

number of depositors = 300

money deposited by one depositor = $150

total deposits = $150.00 *300

= $45000.00

so Banca Monte dei Paschi di Siena loans $45000.00 at t0

at t1 : 200 depositors withdraw the money

so total withdrawal = 200 * ($150.00) + 8% interest

total withdrawal = $32400.00

so bank sells $32400.00 amount of loan at original cost

loan left = $45000.00 - $32400.00

= $12600.00

so bank will receive $12600.00 + 8% simple interest for two years

bank will receive $12600 + $1008 + $1008 = $14616.00 total loan payment after 2 years.