In an economy ‘a la Diamond and Dybvig (1983)1 where the long-term investment has a return of R = 2.25, and the bank offers r1 = 1.25 for early withdrawals or r2 = 1.947 for late withdrawals, would 58% of depositors withdrawing in the first period generate a bank run?
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In an economy ‘a la Diamond and Dybvig (1983)1 where the long-term investment has a return of R = 2.25, and the bank offers r1 = 1.25 for early withdrawals or r2 = 1.947 for late withdrawals, would 58% of depositors withdrawing in the first period generate a bank run?
a. Yes
b. Yes, but only if late depositors would earn a return less than r2
c. No
d. Yes, but only if there is deposit insurance in place
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- I need help solving a question regarding the Diamond-Dybvig model. Specifically (Calculating the bank's profit after t = 2. In other words, what amount of funds remains at the bank once all depositors have withdrawn? ). For context, the question states there are three periods ( t = 0, 1, 2), a single consumption good, and an illiquid investment oppurtunity that pays gross return 1.1 if liquidated at t = 1, or gross return 2.2 if liquidated at t=2. There are 30 people in the economy endowed with with 1 unit of the consumption good at t = 0. At t = 1, exactly 11 will randomly realize that they need to consume at t = 1 (the early consumers), the remaining 19 people will need to consume at t = 2 (the late consumers). The utility derived from consumption is 1 − (1/c1)2 for early consumers, 1 − (1/c2)2 for late consumers, where the subscript denotes the time of consumption.Explain whether each of the following statements is true or false : A). An increase in the ratio of cash holdings to deposits raises the money multiplier. B). If real interest rates become negative, the neoclassical model of investment predicts there is now no limit to how much capital rms want to purchase.Explain the micro factors and macro factors which affect the cost of money? What are the conclusions of Beta stability tests and Tests based on the slope of the SML? (hint: refer to Ch 25 in the textbook) Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.35, what are the expected return and standard deviation for a portfolio comprised of 40 percent Asset A and 60 percent Asset B? 1) Calculate what is called Beta, , from the table below (hint : use excel for calculation for beta) and then 2) make the equation with beta and intercept to calculate the expected return of i asset. (hint; use SML equation in Chapter 25 and rRF=5%, M =9% ) Year M i 1 16% 19% 2 -6% -11% 3 12% 17% 4 14% 19% Calculate the expected return of portfolio and standard deviation of portfolio…
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- Use the concepts of income effect and subsitution effect to explain why the effect on desired savings of an increase in the expected real interest rate is potentially ambiguous. Draw the saving curve for when (a) subsitution effect dominates (b) income effect dominates. I need help with the graphs. Pls solve all for good ratingAccording to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? 2014 2015 2016 2017 2018If long-term interest rates are 8% and short-term interest rates are 3%, the market expects that: A) short-term rates will remain the same in the future. B) there is no relationship between long-term and short-term rates. C) short-term rates will rise in the future. D) short-term rates will fall in the future.
- Suppose that while demand for money still depends on Y as specified, it is now no longer affected by the interest rate.A large money center bank uses the US treasury yield curve to determine the appropriate level for its lending rates. To compensate for the costs of making a loan, the bank needs to charge 1.8% point more than the expected future interest rate on a Treasury security with the same maturity if it is to make a profit. The manager is considering a loan request from a customer seeking a one year loan that starts 2 years from today. If the two-year Treasury Strip rate is 4.1% and the three-year Treasury strip rate is 5.5%, at what minimum rate should the manager be willing to make the loan commitment?Enter your answer as a % to two decimal places. Assume the expectation theory of rates is valid and all liquidity premiums are zero.Ceteris paribus, current financial market returns will increase as _____. Group of answer choices a. the expected productivity of capital goods increases and people are more willing to sacrifice their current consumption in exchange for future consumption b. the expected productivity of capital goods increases and people are less willing to sacrifice their current consumption in exchange for future consumption c. the expected productivity of capital goods decreases and people are more willing to sacrifice their current consumption in exchange for future consumption d. the expected productivity of capital goods decreases and people are less willing to sacrifice their current consumption in exchange for future consumption
