Question

Rearrange the items in the balance sheet shown in the table below so that each is in the correct position. Change one figure only to reflect the bank achieving a 5% target reserve ratio. Assets Liabilities Reserves $ 95 Demand deposits $ 950 Loans 1,355 Securities 310 Shareholders’ equity 90 Fixed assets 230 Assets Liabilities (Click to select) $ (Click to select) $ (Click to select) (Click to select) (Click to select) (Click to select) Total Total

Andra has just been given a $4,100 one-year bond with a coupon rate of 7 percent per year. However, she needs the money now and is surprised to find that the market value of the bond has increased to $4,300. What rate of return (interest) would a prospective buyer earn on this bond? Round your answer below to 1 decimal place.

% interest.

Answer 1

Here,

Rearranging the table,

Assets	Amount($)	Liabilities	Amount($)
Reserves	95	Demand Deposits	950
Loans	1355	Shareholders Equity	90
Securities	310	Other Liabilities	950
Fixed Assets	230
	1990		1990

Now if reserves changed to 5% we have,

Assets	Amount($)	Liabilities	Amount($)
Reserves	47.5	Demand Deposits	950
Loans	1355	Shareholders Equity	90
Securities	310	Other Liabilities	902.5
Fixed Assets	230
	1942.5		1942.5

Buying price of Andra = 4100

Return = 7%

So Value after 1 year = 4100 + 7%*4100 = $4387

Now current price = 4300

So Return for new investir = (4387 - 4300)/4300 =2.02%