A nation’s gross domestic product is $600 million. Its personal consumption expenditures are $350 million and government purchases of goods and services are $100 million. Net exports of goods and services amount to $50 million. a. Determine the nation’s gross private domestic investment. b. If imports exceed exports by $25 million, how would your answer to (a) change?
> BVA Inc. has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bonds? Does
> Koppen Corporation has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bo
> Compute the annual interest payments and principal amount for a Treasury Inflation-Protected Security with a par value of $1,000 and a 3-percent interest rate if inflation is 4 percent in year 1, 5 percent in year 2, and 6 percent in year 3.
> Assume you are planning to invest $5,000 each year for six years and will earn 10 percent per year. Determine the future value of this annuity if your first $5,000 is invested at the end of the first year.
> Determine the future value at the end of two years of an investment of $3,000 made now and an additional $3,000 made one year from now if the compound annual interest rate is 4 percent.
> Determine the present value if $15,000 is to be received at the end of eight years and the discount rate is 9 percent. How would your answer change if you had to wait six years to receive the $15,000?
> Determine the present values if $5,000 is received in the future (i.e., at the end of each indicated time period) in each of the following situations: a. 5 percent for ten years b. 7 percent for seven years c. 9 percent for four years
> Find the present value of $7,000 to be received one year from now assuming a 3 percent annual discount interest rate. Also calculate the present vale if the $7,000 is received after two years.
> You are planning to invest $2,500 today for three years at a nominal interest rate of 9 percent with annual compounding. a. What would be the future value of your investment? b. Now assume that inflation is expected to be 3 percent per year over the same
> 1. Since 2011, the U.S. dollar relative to an index of major currencies generally has been doing which of the following? a. Appreciating b. Depreciating c. Remaining constant d. None of the choices is correct. 2. Which of the following is included
> Determine the future values if $5,000 is invested in each of the following situations: a. 5 percent for ten years b. 7 percent for seven years c. 9 percent for four years
> The following cash flow streams are expected to result from three investment opportunities. a. Find the present values at the end of time period zero for each of these three investments if the discount rate is 15 percent. Also, find the present values
> A credit card advertisement states that the annual percentage rate is 21 percent. If the credit card requires quarterly payments, what is the effective annual rate of interest on the loan?
> You have recently seen a credit card advertisement that states that the annual percentage rate is 12 percent. If the credit card requires monthly payments, what is the effective annual rate of interest on the loan?
> Answer the following questions. a. What is the annual percentage rate (APR) on a loan that charges interest of .75 percent per month? b. What is the effective annual rate (EAR) on the loan described in (a)?
> What would be the present value of a $9,532 annuity for which the first payment will be made beginning one year from now, payments will last for 27 years, the annual interest rate is 13 percent, quarterly discounting occurs, and $2,383 is invested at the
> Use a financial calculator or computer software program to answer the following questions. a. What is the present value of $359,000 that is to be received at the end of 23 years, the discount rate is 11 percent, and semiannual discounting occurs? b. How
> Find the future value of $10,000 invested now after five years if the annual interest rate is 8 percent. a. What would be the future value if the interest rate is a simple interest rate? b. What would be the future value if the interest rate is a compoun
> Use a financial calculator or computer software program to answer the following questions. a. What would be the future value of $19,378 invested now if the money remains deposited for eight years, the annual interest rate is 18 percent, and interest on t
> Use a financial calculator or computer software program to answer the following questions: a. What would be the future value of $7,455 invested annually for nine years beginning one year from now if the annual interest rate is 19 percent? b. What would b
> 1. In which case does an equilibrium currency exchange rate exist? a. When supply is greater than demand b. When demand is greater than supply c. When supply and demand are in balance d. All of the choices are correct. 2. In addition to supply and
> Use a financial calculator or computer software program to answer the following questions: a. What is the present value of $359,000 that is to be received at the end of 23 years if the discount rate is 11 percent? b. How would your answer change in Part
> Use a financial calculator or computer software program to answer the following questions: a. What would be the future value of $15,555 invested now if it earns interest at 14.5 percent for seven years? b. What would be the future value of $19,378 invest
> Assume a bank loan requires an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan’s eight-year life. a. How much could this loan be sold for to another bank if loans of similar quality carried an 8.5 percent interes
> You are considering borrowing $150,000 to purchase a new home. a. Calculate the monthly payment needed to amortize an 8 percent fixed-rate 30-year mortgage loan. b. Calculate the monthly amortization payment if the loan in (a) was for 15 years.
> Determine the annual payment on a $15,000 loan that is to be amortized over a four-year period and carries a 10 percent interest rate. Also prepare a loan amortization schedule for this loan.
> Determine the annual payment on a $500,000, 12 percent, business loan from a commercial bank that is to be amortized over a five-year period.
> What is the present value of a loan that calls for the payment of $500 per year for six years if the discount rate is 10 percent and the first payment will be made one year from now? How would your answer change if the $500 per year occurred for ten year
> Determine the present value now of an investment of $3,000 made one year from now and an additional $3,000 made two years from now if the annual discount rate is 4 percent.
> Find the future value one year from now of a $7,000 investment at a 3 percent annual compound interest rate. Also calculate the future value if the investment is made for two years.
> Find the default risk premium for a debt security given the following information: inflation premium = 3%, maturity risk premium = 2.5%, real rate = 3%, liquidity premium = 0%, and market interest rate is 10%.
> 1. Which is the method that indicates the value of one unit of a foreign currency in terms of a home country’s currency? a. Direct quotation method b. Indirect quotation method c. Negotiated quotation method d. All of the choices are correct. 2. Wh
> Find the nominal interest rate for a debt security given the following information: real rate = 2%, liquidity premium = 2%, default risk premium = 4%, maturity risk premium = 3%, and the inflation premium = 3%.
> Inflation is expected to be 3 percent over the next year. You desire an annual real rate of return of 2.5 percent on your investments. a. What nominal rate of interest would have to be offered on a one-year Treasury security for you to consider making an
> You are considering an investment in a one-year government debt security with a yield of 5 percent or a highly liquid corporate debt security with a yield of 6.5 percent. The expected inflation rate for the next year is expected to be 2.5 percent. a. Wha
> A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury note has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect i
> A 30-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury note has an interest rate of 3.7 percent. If inflation is expected to average 1.5 percentage points over both the next ten years and thirty years, determine th
> A 20-year U.S. Treasury bond has a 3.50 percent interest rate, while a same maturity corporate bond has a 5.25 percent interest rate. Real interest rates and inflation rate expectations would be the same for the two bonds. If a default risk premium of 1.
> A one-year U.S. Treasury security has a market interest rate of 2.25 percent. If the expected real rate of interest is 1.50 percent, what is the expected annual inflation rate?
> Following are some selected interest rates. a. Plot a yield curve using interest rates for government default risk-free securities. b. Plot a yield curve using corporate debt securities with low default risk (high quality) and a separate yield curve fo
> A 30-year corporate bond has a nominal interest rate of 12 percent. This bond is not very liquid and consequently requires a 2 percent liquidity premium. The bond is of low quality and thus has a default risk premium of 2.5 percent. The bond has a remain
> The interest rate on a 20-year Treasury bond is 9.25 percent. A comparable maturity Aaa-rated corporate bond is yielding 10 percent. Another comparable maturity but lower quality corporate bond has a yield of 14 percent which includes a liquidity premium
> 1. The European Union at the end of 2015 consisted of how many independent member states? a. 6 b. 12 c. 18 d. 28 2. How many member states are currently Eurozone members? a. 19 b. 15 c. 12 d. 6 3. The euro became the official currency of 11 E
> A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an 8-year Treasury note has a yield of 8 percent. a. If inflation is expected to average 7 percent over the first four years, what is the expecte
> Assume that the interest rate on a one-year Treasury bill is 6 percent and the rate on a two-year Treasury note is 7 percent. a. If the expected real rate of interest is 3 percent, determine the inflation premium on the Treasury bill. b. If the maturity
> Find the default risk premium for a debt security given the following information: inflation premium – 2.5 percent, maturity risk premium = 2.5 percent, real rate = 3 percent, liquidity premium = 1.5 percent, and nominal interest rate = 14 percent.
> Assume investors expect a 2.0 percent real rate of return over the next year. If inflation is expected to be 0.5 percent, what is the expected nominal interest rate for a one-year U.S. Treasury security?
> A country in Southeast Asia states its gross domestic product (GDP) in terms of yen. Last year its GDP was 50 billion yen when one U.S. dollar could be exchanged into 120 yen. a. Determine the country’s GDP in terms of U.S. dollars for last year. b. Assu
> A nation’s gross domestic product (GDP) is stated in U.S. dollars at $40 million. The dollar value of one unit of the nation’s currency (FC) is $0.25. a. Determine the value of GDP in FC’s. b. How would your answer change if the dollar value of one FC in
> Assume some of the data provided in Problem 5 changes next year. Specifically, government purchases of goods and services increase by 10 percent; gross private domestic investment declines by 10 percent; and the imports of goods and services drop to $6 b
> The components that comprise a nation’s gross domestic product were identified and discussed in the chapter. Assume the following accounts and amounts were reported by a nation last year. Government purchases of goods and services were $5.5 billion; pers
> Assume personal income was $28 million last year. Personal outlays were $20 million and personal current taxes were $5 million. a. What was the amount of disposable personal income last year? b. What was the amount of personal saving last year? c. Calcul
> 1. Before World War I, the international monetary system operated mostly under which type of standard? a. U.S. dollar standard b. Euro standard c. Gold standard d. Diamond standard 2. Which of the following currencies is not included in the current
> Personal income amounted to $17 million last year. Personal current taxes amounted to $4 million and personal outlays for consumption expenditures, non-mortgage interest, and so forth were $12 million. a. What was the amount of disposable personal income
> How would your answer change in Problem 1 if the gross domestic product had been $14 million? Data from Problem 1: A very small country’s gross domestic product (GDP) is $12 million. If government expenditures amounted to $7.5 million and gross private
> Following are data relating to a nation’s operations last year. Capital consumption allowances…………………………………………$150 million Undistributed corporate profits………………………………………………40 million Personal consumption expenditures …………………………………….450 million Personal
> A very small country’s gross domestic product (GDP) is $12 million. If government expenditures amounted to $7.5 million and gross private domestic investment is $5.5 million, what would be the amount of net exports of goods and services?
> Assume that last year the Australian dollar was trading at $.5527, the Mexican peso at $.1102, and the British pound was worth $1.4233. By this year the U.S. dollar value of an Australian dollar was $.7056, the Mexican peso at $.0867, and the British pou
> Assume that five years a euro was trading at a direct method quotation of $.8767. Also assume that recently the indirect method quotation was .8219 euros per U.S. dollar. a. Calculate euro “currency per U.S. dollar” five years ago. b. Calculate the “U.S
> Assume a U.S. dollar is worth 10.38 Mexican Pesos and .64 euros. Calculate the implied value of a Mexican Peso in terms of a euro.
> If the U.S dollar value of a British Pound is $1.95 and a euro is $1.55, calculate the implied value of a euro in terms of a British Pound.
> A few years ago the U.S. dollar equivalent of a foreign currency was $1.2167. Today, the U.S. dollar equivalent of a foreign currency is $1.3310. Determine the percentage change of the euro between these two dates.
> A few years ago the U.S. dollar equivalent of a foreign currency was $1.2167. Today, the U.S. dollar equivalent of a foreign currency is $1.3310. Using the indirect quotation method, determine the currency per U.S. dollar for each of these dates.
> 1. By which method is the M1 definition of the money supply calculated? a. Monetary base divided by the money multiplier b. Money multiplier divided by the monetary base c. Monetary base times the money multiplier d. None of the choices is correct.
> Over a two-year period, the U.S. dollar equivalent of a euro increased from $1.3310 to 1.4116. Determine the percentage change of the euro between these two dates.
> Over a two-year period, the U.S. dollar equivalent of a euro increased from $1.3310 to 1.4116. Using the indirect quotation method, determine the currency per U.S. dollar for each of these dates.
> Following are currency exchange “cross rates” between pairs of major currencies. Currency cross rates include both direct and indirect methods for expressing relative exchange rates. a. Fill in the missing exchange r
> Assume the interest rate in Australia on one-year government debt securities is 10 percent and the interest rate on Japanese one-year debt is 5 percent. Assume the current Australian dollar value of the Japanese yen is $0.0200. Using interest rate parity
> Assume the interest rate on a one-year U.S. government debt security is currently 9.5 percent compared with a 7.5 percent on a foreign country’s comparable maturity debt security. If the U.S. dollar value of the foreign country’s currency is $1.50, what
> Assume inflation is expected to be 8 percent in New Zealand next year compared with 4 percent in France. If the New Zealand dollar value of a euro $0.400, what is the expected exchange rate one-year from now based on purchasing power parity?
> Assume inflation is expected to be 3 percent in the United States next year compared with 6 percent in Australia. If the U.S. dollar value of an Australian dollar is currently $0.500, what is the expected exchange rate one-year from now based on purchasi
> Assume one U.S. dollar ($US) can currently purchase 1.316 Swiss francs. However, it has been predicted that one $US soon will be exchangeable for 1.450 Swiss francs. a. Calculate the percentage change in the $US if the exchange rate change occurs. b. Det
> Assume the U.S. dollar ($US) value of the Australian dollar is $0.73 while the U.S. dollar value of the Hong Kong dollar is $0.13 a. Determine the number of Australian dollars that can be purchased with one $US. b. Determine the number of Hong Kong dolla
> Assume that the Danish krone (DK) has a current dollar ($US) value of $0.18 a. Determine the number of DK that can be purchased with one $US. b. Calculate the percentage change (appreciation or depreciation) in the Danish krone if it falls to $0.16. c. C
> 1. When required reserves are larger than the bank reserves of a depository institution, what is the difference called? a. Excess reserves b. Deficit reserves c. Excess vault cash d. Federal Reserve float 2. Which of the following transactions affe
> Exchange rate relationships between the U.S. dollar and the euro have been quite volatile. When the euro began trading at the beginning of 1999, it was valued at 1.17 U.S. dollars. By late-2000, a euro was worth only $.83 and peaked at $1.60 in mid-2008.
> You have been asked to assess the impact of possible changes in reserve requirement components on the dollar amount of reserves required. Assume the reserve percentages are currently set at 2 percent on the first $50 million of traction account amounts;
> Show how your answers in problem 6 would change if the fed lowered the cut-off between the 2 percent rate and the 8 percent rate from $40 million in transaction account balances down to $20 million. Data from problem 6: Assume that banks must hold a 2
> Assume that the Fed decides to increase the required reserve percentage on transaction accounts above $40 million from 8 percent to 10 percent. All other information remains the same as given in Problem 6, including the transaction account balances held
> Assume that banks must hold a 2 percent reserve percentage against transaction account balances up and including $40 million. For transaction accounts above $40 million, the required reserve percentage is 8 percent. Also assume that the Dell National Ban
> The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent. a. If the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in complia
> A bank has $10 million in vault cash and $110 million in deposits. If total bank reserves were $15 million with $2 million considered to be excess reserves, what required reserves ratio is implied?
> A bank has $110 million in deposits and holds $10 million in vault cash. a. If the required reserves ratio is 10 percent, what dollar amount of reserves must be held at the Federal Reserve Bank? b. How would your answer in Part (a) change if the required
> Assume a Bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1 million in excess reserves and the required reserves ratio is 8 percent, what level of deposits are being held?
> A new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank. a. If the required reserves ratio is 8 percent, what dollar amount of deposits can the bank have? b. If the bank holds $65 million in deposits
> 1. The U.S. fractional reserve system requires that at each depository institution funds be held in reserve equal to a certain percentage of which one of the following? a. Deposit liabilities b. Stockholders’ equity c. Securities held d. Loans secure
> 1. A surplus economic unit is one that a. spends more money than it brings in. b. generates more money than it spends. c. produces an amount money equal to what it spends. d. borrows money from businesses or the government. 2. The savings-investmen
> Tenth National Bank has common stock of $2 million, retained earnings of $5 million, loan loss reserves of $3 million, and subordinated notes outstanding in the amount of $4 million. Total bank assets are $105 million. Calculate the common equity capital
> Use the data from Problem 7 for Second National Bank and calculate the common equity capital ratio assuming that stockholders’ equity was equal to common equity (i.e., there was no preferred stock). Data from Problem 7: Rearrange the following accounts
> Rearrange the following accounts to construct a bank balance sheet for the Second National Bank. What are the total amounts that make the bank’s balance sheet “balance”? Demand deposits:…………………………………………..$20 million Cash assets:……………………………………………………..$5
> A bank’s assets consist of: Cash: ………………………………………..$1.5 million Loans:……………………………………….$10 million Securities…………………………………$4.5 million Fixed assets…………………………………$2 million In addition, the bank’s common equity is $1.5 million. a. Calculate the common equ
> Following are selected balance sheet accounts for the Third State Bank: vault cash = $2 million; U.S. government securities = $5 million; demand deposits = $13 million; non transactional accounts = $20 million; cash items in process of collection = $4 mi
> ATM Banc has the following liabilities and equity categories: Deposits…………………………………………………$9 million Other liabilities……………………………………….$4 million Stockholders’ equity…………………………………………….? Total liabilities and stockholders’ equity ……………….? a. What would be
> ABE Banc has the following asset categories: Cash………………………………………$1 million Securities……………………………..$4 million Loans…………………………………………………? Other assets …………………………$2 million Total assets…………………………………………? a. What would be the bank’s total assets if loans wer
> Assume that you can borrow $175,000 for one year from a local commercial bank. a. The bank loan officer offers you the loan if you agree to pay $16,000 in interest plus repay the $175,000 at the end of one year. b. As an alternative you could get a one-
> This problem focuses on bank capital management and various capital ratio measures. Following are recent balance sheet accounts for Prime First National Bank. All amounts are in millions of dollars. a. Calculate the common equity capital ratio. How cou
> Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts: Cash…………………………………………………..= $5 million Government securities………………………..= $7 million Mortgage loans………………………………….= $30 million Other loans
> 1. The largest annual government deficit occurred in which of the following fiscal years? a. 1969 b. 2001 c. 2009 d. 2015 2. What, approximately, is the amount of the national debt today (2016)? a. $1 trillion b. $6 trillion c. $12 trillion d.
> The following three one-year “discount” loans are available to you: Loan A: $120,000 at a 7 percent discount rate Loan B: $110,000 at a 6 percent discount rate Loan C: $130,000 at a 6.5 percent discount rate a. Determine the dollar amount of interest you
> The following problem requires a basic knowledge about probabilities and the calculation of expected values. In addition, the problem is more easily solved using Excel spreadsheet software. a. Calculate the dollar amount of the money supply under each
