Question 1 of 10 Bank management: New policy dictates a 16% reserve ratio, have you met your minimum required reserve? A. Yes B. No Question 2 of 10 What is your bank capital amount? Choose all that apply A. -50M B. $200M C. $100M D. TA-TL E. $75M Question 3 of 10 If your bank suffers a deposit outflow of $10 million with a required reserve ratio on deposits of 16%..Can you still manage to meet required reserve? A. Yes B. No Question 4 of 10 What is the size of your shortfall? A. $54M B. $2.4M C. $2.9M D. $20M Question 5 of 10 Which option will you choose to correct the shortfall ? A. borrow from the Fed funds market at July 2017 rate B. borrow from the Fed at the most recent discount rate C. selling $2M worth in loans to another bank D. buy $2.4M worth corporate bonds with coupon of 3%. Question 6 of 10 Your Associate also wants you to look at your competitors balance sheets to compare your financial condition. Using your analysis for BofA, GS and Citigroup answer the following A. Assets B. GS C. Liabilities D. TRUE E. BofA F. FALSE G. Citigroup ___ 1. Which firm has the smallest deposits ___ 2. Which firm has largest amount of loans outstanding? ___ 3. Which firm has the smallest amount of loans outstanding ___ 4. _____ loans / deposits ratio is 66% ___ 5. Citigroup loans/deposits ratio is greater than BofA loans/deposits ratio ___ 6. Which firm has largest debt securities / deposits ? ___ 7. GS chooses to have more assets in debt securities than in loans ___ 8. For Commercial Banks deposits with the bank are ___ 9. For Commercial Banks loans and debt securities that are to be paid to the Bank Question 7 of 10 Bonds and Yields: A: 3 year US Treasury note B: Startup firm's bond Type A or B Which bond will you choose if you need cashflow every year for the next 3 years? Bond____ Which bond has a cheaper present value? Bond____ Which of these bonds is a zero coupon bond? Bond____ If you were a bank regulator which of these investment would you weight to have more risk? Bond____ Which bond has a lower chance of default? Bond____ Question 8 of 10 Compare the following Bonds Bond A: 20 year bond selling for $950 with coupon of 4% and face $1,000. Bond B: 1 year bond selling for $950 with coupon of 1% and face $1,000 A. discount B. Bond A C. TRUE D. TRUE E. FALSE F. FALSE G. FALSE H. FALSE I. Bond A J. premium K. Bond B L. TRUE ___ 1. These bonds are selling at , discount, premium or par? ___ 2. Which $1,000 face value bond has higher yield to maturity ? ___ 3. Current yield is a better approximation for the 1 yr bond YTM than for the 20 year bond YTM? ___ 4. If interest rates are expected to increase which bond has more risk ? ___ 5. If the 1 year bond price drops to $500 it's YTM > 20 yr priced at $950 YTM? ___ 6. If interest rates are expected to decrease over time which bond would you prefer ? ___ 7. If the 20 year bond price increased ...

1. Question 1 of 10
Bank management: New policy dictates a 16% reserve ratio,
have you met your minimum required reserve?
A. Yes
B. No
Question 2 of 10
What is your bank capital amount? Choose all that apply
A. -50M
B. $200M
C. $100M
D. TA-TL
E. $75M
Question 3 of 10
If your bank suffers a deposit outflow of $10 million with a
required reserve ratio on deposits of 16%..Can you still manage
to meet required reserve?
A. Yes
B. No
Question 4 of 10
What is the size of your shortfall?
A. $54M
B. $2.4M
C. $2.9M
D. $20M
Question 5 of 10

2. Which option will you choose to correct the shortfall ?
A. borrow from the Fed funds market at July 2017 rate
B. borrow from the Fed at the most recent discount rate
C. selling $2M worth in loans to another bank
D. buy $2.4M worth corporate bonds with coupon of 3%.
Question 6 of 10
Your Associate also wants you to look at your competitors
balance sheets to compare your financial condition. Using your
analysis for BofA, GS and Citigroup answer the following
A. Assets
B. GS
C. Liabilities
D. TRUE
E. BofA
F. FALSE
G. Citigroup
___ 1. Which firm has the smallest deposits
___ 2. Which firm has largest amount of loans outstanding?
___ 3. Which firm has the smallest amount of loans outstanding
___ 4. _____ loans / deposits ratio is 66%
___ 5. Citigroup loans/deposits ratio is greater than BofA
loans/deposits ratio
___ 6. Which firm has largest debt securities / deposits ?
___ 7. GS chooses to have more assets in debt securities than in
loans
___ 8. For Commercial Banks deposits with the bank are
___ 9. For Commercial Banks loans and debt securities that are
to be paid to the Bank

3. Question 7 of 10
Bonds and Yields:
A: 3 year US Treasury note
B: Startup firm's bond
Type A or B
Which bond will you choose if you need cashflow every year
for the next 3 years? Bond____
Which bond has a cheaper present value? Bond____
Which of these bonds is a zero coupon bond? Bond____
If you were a bank regulator which of these investment would
you weight to have more risk? Bond____
Which bond has a lower chance of default? Bond____
Question 8 of 10
Compare the following Bonds
Bond A: 20 year bond selling for $950 with coupon of 4% and
face $1,000.
Bond B: 1 year bond selling for $950 with coupon of 1% and
face $1,000
A. discount
B. Bond A
C. TRUE
D. TRUE
E. FALSE
F. FALSE

4. G. FALSE
H. FALSE
I. Bond A
J. premium
K. Bond B
L. TRUE
___ 1. These bonds are selling at , discount, premium or par?
___ 2. Which $1,000 face value bond has higher yield to
maturity ?
___ 3. Current yield is a better approximation for the 1 yr bond
YTM than for the 20 year bond YTM?
___ 4. If interest rates are expected to increase which bond has
more risk ?
___ 5. If the 1 year bond price drops to $500 it's YTM > 20 yr
priced at $950 YTM?
___ 6. If interest rates are expected to decrease over time which
bond would you prefer ?
___ 7. If the 20 year bond price increased to $2000, the YTM is
negative?
___ 8. Looking at current yield formula , current yield can be
negative ?
___ 9. If you buy the 20 year bond today for $950 and sell it
next year for $1,200, this bond is sold at
___ 10. If you buy the 20 year bond today for $950 and sell it
next year for $1,200 the return is 29.47%
___ 11. If you buy the 20 year bond today for $950 and sell it
next year for $1,200 the return on your bond is equal to the
YTM
___ 12. In order for either of these bonds to have yield equal to
coupon, the price must be greater than face value?
Question 9 of 10
Treasury Yield curves
Type T or F

5. ___ Prior to 2008, Oct yield curves were normal shaped
___ Oct 2012 30 yr yield was greater than 2011 30 yr yield
___ Oct 5 yr yields have strickly decreased since 2006
___ In 2015 QE stopped and all short term yields increased
from 2015-2016
___ All 2017 term yields are higher than 2016 term yields
___ Overall Short term rates decayed most from 2006 – 2017
Question 10 of 10
Extra Credit
A. South Sea Bubble
B. Tulipmania
C. Both
D. Neither
___ 1 This asset was a share of a startup firm and had tax
advantages on dividends
___ 2. This asset bubble popped when demand for asset dropped
___ 3. Middle class social status was measure by this asset
___ 4. This asset was measurement of aristocracy
___ 5. This asset was a physical asset and had potential supply
constraints that many physical assets have
___ 6. Which bubble had an investor speculation attribute
___ 7. This asset had government investment involvement and
government regulation in the aftermath
___ 8. This asset had hints of firm manipulation
___ 9. This asset bubble took place in the 16th century
Question 1.

6. (a) Common property: internet
(b) A club good: private park.
(c) A public good: defense
(d) good that is a public good when there are only few
consumers, but becomes congested with too many consumers:
air
Question 2.
(a) Yes, they will have a trade. Because when there is no trade,
Albert can only consume x1 and Betty can only consume x2, for
the utility function, in this situation, their utility will be 0. So
trade can help them to increase their utility.
(b)
(c) MRS12=Ux1/Ux2=x2/x1
x1^2=x2^2
Hence, when equilibrium,
X1=X2=200
So, A consumes (200x1,200x2) B consumes (200x1,200x2)
(d) Yes, because B cannot store the nuts, so in the winter, she
will have nothing and her utility will be 0. So she needs to trade
with A.
Question 3.
(a) To compute the contract curve, apply the Samuelson rule:
MRSA +MRSB =dUA/dg/(dUA/dXA)+ dUB/dg/(dUB/dXB)=1
XA/2g + 2XB/g =1
By the feasibility constraint, xA + xB + g = wA + wB=3
XA+XB=3-g

7. XA+4XB=2g
The Kolm triangle is composed with the two functions above.
And the endowment point is (4-2g,g-1)
(b) The contract curve is 1/2XA+XB=1
(c) To compute the Nash equilibrium, let sA and sB denote the
consumers' contributions to the public good, so that g = sA +
sB. Then
UA=(2-SA)^2*(SA+SB)
dUA /dSA=(2-SA)*(2-3SA-2SB)=0
For UB, it is similar.
UB=(1-SB)(SA+SB)^2
(SA+SB)(2-SA-3SB)=0
SB=4/7 SA=2/7
The total amount of public good provided is therefore
sA+Sb=6/7
(d) The Nash equilibrium allocation in the Kolm triangle is
XA= 6/7 XB=6/7 g=6/7
It is efficient.
(e) If B’s utility function is the same as A.
XA+XB=2g
XA+XB=3-g
XA+XB=3/2+g/2
SA=SB=2/5
g=4/5
So there will not be equilibrium when A and B has the equal
utility function. B can act as he has the same utility function as
A, since the public goods take higher percentage in his function.
Question 4.
(a) E(valuation)=0*1/3*1/3+1*2/3*2/3+2(1/3*2/3*1/2)=2/3
It is efficient to provide the public good.

8. (b)
Rb=0
Rb=1
Ra=0
0(0,0)
q(0,2/3)
Ra=1
1(2/3,0)
1(1/3,1/3)
2/9*1(1-2/3)+4/9*1*(1-1/3)>=1/9*0*(1-0)+2/9*q*(1-0)
q<=5/3
So setting q = 5/3 is the best we can do.
(c) That is, the probability of outcome (vA = 0; vB = 1) where
the inefficiency occurs
(ie.2/9) times the probability that the good is not provided in
this case (i.e 1 - q)
times the value that provision would create (i.e. 0 + 1- 2/3).
How big of a loss is
that? To answer this, compute the expected overall value
created by e_cient public
good provision
1/9*0+2/9(1-2/3)+2/9(1-2/3)+4/9(2-2/3)=20/27
(d)
Rb=0
Rb=1
Ra=0
0(0,0)
1(0,2/3)

9. Ra=1
1(2/3,0)
1(k,1/3)
2/9*1(1-2/3)+4/9*1*(1-k)>=1/9*0*(1-0)+2/9*1*(1-0)
k<=2/3
So setting k =2/3 is the best we can do.
(e)No, because in this condition, nobody will want to buy the
public good because they may get loss in this process. In this
condition, there will be a free ride problem.
Econ 301 Money and Banking RP2
Banking Management
1. You have just landed an internship with a large multinational
bank in the US. You have been tasked to
analyze the statement of financial condition for the bank. New
policy has dictated a 16% reserve ratio, if
the bank fails to meet the requirement you will be fined 1% of
deposits for each day of shortfall
Using the data provided in excel template calculate
a. What is your bank capital value?
b. Have you met your minimum required reserve?
c. if you failed to meet min required reserve what is the amount
in dollars

10. If your bank suffers a deposit outflow of $10 million with a
required reserve ratio on deposits of 16%..
a. Correct and complete your Bank balance sheet
b. Can you still manage to meet required reserve?
c. How much is required to meet, what is the size of your
shortfall?
Which option will you choose to correct the shortfall?
See excel and questionnaire multiple choice.
2. Your Associate also wants you to look at your competitors
balance sheets to compare your
financial condition. Using the Financial Statement links
provided for Bank of America (BofA),
Goldman Sachs (GS) and Citigroup
a. Import the missing data on Loans, Debt Securities and
Deposits
b. Calculate the loans/deposit ratio
c. Calculate the Debt securities/ deposit ratio
3. Using your analysis answer the questions on the excel and
questionnaire.
Bonds and Yields
1. You are tasked with investing your Bank's excessive reserves
a. You can use funds to invest in a 3 year US Treasury note.
The coupon you receive on the US T note
is $300 per year for three years and a final payment of $1,000.

11. b. You can use funds to invest into a new startup, buy the
startup firm's bond. You will receive
$1400 on this investment in the third year and nothing in the
first two years.
If your interest rate (yield) is 1.95%, what should you pay for
each of these investments?
Hint: Find the PV of these investments
c. Which of these investments is a zero coupon bond?
d. If you were a Bank regulator which of these investments
would you weight to have
more risk?
Econ 301 Money and Banking RP2
Compare the following bonds
a. 20 year bond selling for $950 with annual coupon of 3% and
face value $1,000
b. 1 year bond selling for $950 with annual coupon of 1% and
face value $1,000

12. the YTM and Current yields
questionnaire.
Term Structure of Interest Rates: Yield Curves
1. Import the Treasury Rates for all maturities and for dates
given in the excel template
2. Create 2 plots
a. For 2006-2011 Yield Curves
b. For 2012-2017 Yield Curves
3. Using your analysis answer the questions on the excel and
questionnaire.
Extra
Watch the links about Tulipmania and the South Sea Bubble and
answer the questions in the
accompanying questionnaire.
https://www.treasury.gov/resource-center/data-chart-
center/interest-rates/Pages/TextView.aspx?data=yield
https://www.youtube.com/watch?v=nrUknL2P8zw
https://www.youtube.com/watch?v=rfZ4OZNhAJ8
Bank Balance Sheet all figures are in millionsCompare 2016
Balance Sheet for Bofa, GS and CitigroupNew policy dictates a
16% reserve ratioAssetsLiabilitiesloans Debt
secAssetsLiabilitiesIf you fail to meet this requirement you will
be fined 1% of depositsall figures are in millions2016loansdebt

13. securitiesDepositsdepositsdepositsReserves70Deposits400BofA
p 23ERROR:#DIV/0!Loans530Bank capital GSp
67295,952124,098Citigroupp 12353,304total600400For
Commercial/Investment Banks deposits areFor
Commercial/Investment Banks loans and debt securities
areWhich firm has smallest deposits?a. have you met your
minimum required reserve ?Which firm has largest amount of
loans outstanding?b. what is your bank capital value ?Which
firm smallest amount of loans outstanding?c. if you failed to
meet min required reserve _______ loans / deposits is 66%what
is the amount in dollarsWhich bank has the largest debt
securities / deposits ?If your bank suffers a deposit outflow of
$10 million with a required reserve ratio on deposits of
16%..Fill in your bank balance sheet Required reserve ratio
16%Depositor withdraws
10MAssetsLiabilitiesReservesDepositsLoans530Bank capital
530total530530Can you still manage to meet required
reserve?how much is required to meet requirement, in other
words what is the size of your short fall?Which option will you
choose to correct the shortfall ?a. borrow from the Fed at a most
recent discount rateb. selling $2M worth in loans to another
bank c. borrow from the fed funds market at July 2017 rated.
buy $2.4M worth corporate bonds with coupon of 3%.July 2017
Fed Fund Rate Most recent Discount
Ratehttp://media.corporate-
ir.net/media_files/IROL/71/71595/BOAML_AR2016.pdfhttp://w
ww.goldmansachs.com/investor-
relations/financials/current/annual-reports/2016-annual-
report/annual-report-
2016.pdfhttp://www.citigroup.com/citi/investor/quarterly/2017/
ar16_en.pdf?ieNocache=307https://fred.stlouisfed.org/series/FE
DFUNDShttps://fred.stlouisfed.org/series/INTDSRUSM193N
Bonds and YieldYou are tasked with investing your Bank's
excessive reserves a.You can use funds to invest in a 3 year US
Treasury note. The coupon you receive on the US T note is
$300 per year for three years and a final payment of $1,000.

14. b.You can use funds to invest into a new startup, buy the startup
firm's bond. You will receive $1400 on this investment in the
third year and nothing in the first two years. If your interest
rate(yield) is 1.95%, what should you pay for each of these
investments? Find the PV of these investmentsPV
#1=++i=0.01951.0195(1.0195)2(1.0195)3PV
#2=++1.0195(1.0195)2(1.0195)3Which of these investments is a
zero coupon bondIf you were a Bank regulator which of these
investments would you weight to have more risk?Compare the
followinga. 20 year bond selling for $950 with annual coupon of
3% and face value of $1,000b. a 1 year bond selling for $950
with annual coupon of 1% face value of $1,000Bond ABond
B20 yr1 yrprice950950coupon30par
value10001000n201YTMcurrent yThese bonds are selling at ,
discount, premium or par?Which $1,000 face value bond has
higher yield to maturity ?Current yield is a better approximation
for the 1 yr bond YTM than for the 20 year bond YTM?If
interest rates are expected to increase which bond hasmore risk
?If the 1 year bond price drops to $500 it's YTM > 20 yr priced
at $950 YTM?If interest rates decreased which bond would you
prefer ?If the 20 year bond price increased to $2000, the YTM
is positive, negative,zero?Do you think current yield can ever
be negative ?If you buy the 20 year bond today for $950 and
sell it nextyear for $1,200 what is the return?this return on the
bond equals YTM?
Treasury YCDate1 Mo3 Mo6 Mo1 Yr2 Yr3 Yr5 Yr7 Yr10 Yr20
Yr30 YrCreate another
plot10/2/064.674.885.024.94.664.594.564.574.624.834.7610/2/0
710/2/0810/2/0910/1/1010/3/1110/2/1210/2/1310/2/1410/2/1510
/3/1610/3/171.011.071.211.321.471.621.922.152.332.632.87dec
ay rate-0.7837259101-0.7807377049-0.7589641434-
0.7306122449-0.6845493562-0.6470588235-0.5789473684-
0.5295404814-0.4956709957-0.4554865424-
0.3970588235YearsRate200620072008200920102011201220132
014201520162017T/F0.083333333351.02Prior to 2008, Oct
yield curves were normal shaped0.255.111.13Oct 2012 30 yr

15. yield was greater than 2011 30 yr yield0.55.211.14Oct 5 yr
yields have strickly decreased since 200615.161.23In 2015 QE
stopped and all short term yields increased from 2015-
201625.061.36All 2017 term yields are higher than 2016 term
yields35.021.5Overall Short term rates decayed most from 2006
- 201754.991.83752.09Short Term 1 year or
less105.042.29Medium Term 2-7 years205.222.65Long Term
10,20,30 year305.12.89
July mid 2006-2011
2006 8.3333333333333329E-2 0.25 0.5 1 2 3 5 7
10 20 30 5 5.1100000000000003 5.21 5.16
5.0599999999999 996 5.0199999999999996 4.99 5
5.04 5.22 5.0999999999999996 2007
8.3333333333333329E-2 0.25 0.5 1 2 3 5 7
10 20 30 2008 8.3333333333333329E-2 0.25 0.5 1
2 3 5 7 10 20 30 2009
8.3333333333333329E-2 0.25 0.5 1 2 3 5 7
10 20 30 2010 8.3333333333333329E-2 0.25 0.5 1
2 3 5 7 10 20 30 2011
8.3333333333333329E-2 0.25 0.5 1 2 3 5 7
10 20 30
TTM
YTM
ExtraTulipmaniahttps://www.youtube.com/watch?v=nrUknL2P8
zwSouth Sea
Bubblehttps://www.youtube.com/watch?v=rfZ4OZNhAJ8https://
www.youtube.com/watch?v=nrUknL2P8zwhttps://www.youtube.
com/watch?v=nrUknL2P8zwhttps://www.youtube.com/watch?v=
rfZ4OZNhAJ8https://www.youtube.com/watch?v=rfZ4OZNhAJ8