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NewBank started its first day of operations with ​$180 million in capital. A total of ​$253...

NewBank started its first day of operations with

​$180

million in capital. A total of

​$253

million in checkable deposits is received. The bank makes a

​$25

million commercial loan and another

​$29

million in mortgage loans. Required reserves are

8.4​%.

NewBank decides to invest

​$324

million in​ 30-day T-bills. The​ T-bills are currently trading at

​$4988

​(including commissions) for a

​$5030

face value instrument. How many​ T-bills do they​ purchase?

​(​Note:

Information is based on​ NewBank's first month of​ operations.)

NewBank will purchase

nothing

​T-bills. ​(Round your response to the nearest whole​ number.)

Solutions

Expert Solution

New bank started its first day of operations with $180 million in capital. A total of $253 million in checkable deposits is received .The bank makes a $25 million commercial loan and another $29 million in mortgage loans. If required reserves are 8.4%, what does the bank balance sheet looks like.
Assets Liabilities
Required reserves $21.252 million Checkable deposit $253 million
Excess reserves $357.75 million Bank Capital $180 million
Loans $54 million

Assets Total $433 million Liabilities Total $433 million
Workings
Required reserves = reserve percentage * checkable deposits = 8.4%*$ 253 million = $21.252 million
Loans = commercial loan + mortgage = $25 million + $29 million=$54 million
Excess reserves = Total liabilities - loans - required reserves = $433 million - $54 million - $21.252 million = $357.75 million

New bank decides to invest $324 million in 30day T-Bills . The T-Bills are currently trading at $4,988 (including commissions) for a $5,030 face value instrument .How many do they purchase ? What does the balance sheet look like?
No of T bills purchased = Amount invested / price of T bill = $324 million / $4988 = 64955.89 T Bills
Face Value of T Bills = 64955.89 *5030=$326.79 million (Actual cost is 326728147.6)

Assets Liabilities
Required reserves $21.252 million Checkable deposit $253 million
Excess reserves $30.98 million Bank Capital $180 million

T Bills $326.79
Loans $54 million

Assets Total $433 million Liabilities Total $433 million

NewBank will purchase nothing ​T-bills. ​If NewBank does not purchase any tbills, the balance sheet will remain the same as in 1st case i.e. no change as there are no new operations.

jeff jeffy answered 1 year ago
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