1.) Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent, and there are no leakages in the system. A. What is the size of the money multiplier? B. What will be the system’s money supply?
2.) Obtain a current issue of the Federal Reserve Bulletin, or review a copy from the Fed’s web site (http://www.federalreserve.gov) or the St. Louis Fed’s Web Site (http://www.stlouisfed.org), and determine the changes in the prime rate that have occurred since the end of 2000.
Comment on any trends in the data.
3.) Find the NPV and PI of a project that costs $1,500 and returns $800 in year one and $850 in year two. Assume the project’s cost of capital is 8 percent.
4.) AA Auto parts company has a corporate tax rate of 34 percent
and depreciation of $19,180. Compute its depreciation tax shield.
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