Question

1. Jian Fe purchased 100 shares of Apple stock in 1997 for approximately 21 per share ($2,100). He sold them in 2011 for $150,000. What Core Principle of Money and Banking applies to this example?

2. Lana applied for a mortgage so that she could purchase a coop apartment in Queens Village. After sending in her tax returns, pay stubs, bank statements, and a copy of her license, her application was rejected. What Core Principle of Money and Banking applies to this example?

3. Brooklyn and Queens suddenly became the hottest neighborhoods on the East Coast. Prices of homes have risen dramatically, priced so high that the average person simply can no longer afford a home.   It seems no one can understand why prices of homes and also rents have gone up so much in Brooklyn and Queens. What Core Principle of Money and Banking applies to this example?

4. Since 2008, the Federal Reserve Bank injected money into the economy to provide liquidity to banks and investors, via a program called Quantitative Easing, to help keep the economy stable. What Core Principle of Money and Banking applies to this example?

Finance homework, Help !!!

Answer 1

1]

The compounding effect applies here.

Due to compounded growth, the share price has increased exponentially over the 14-year period

2]

The debt service ratio applies here. Due to her debt service ratio being inadequate, the loan was rejected

3]

Bubble.

A bubble is when the prices of assets increase exponentially without any fundamental reason for their increase.

4]

The money supply and interest rates principle applies here.

Higher the money supply, lower the interest rates. Lower interest rates make it cheap for firms to borrow, and this is expected to spur economic growth