NewBank started its first day of operations with $6 million in capital

NewBank started its first day of operations with $6 million in capital. $100 million in checkable deposits is received. Suppose that the required reserve ratio is 8%.

(a) (10pt) On the first day, the bank issues a $25 million commercial loan and another $25 million in mortgages, with the following terms:

• Mortgages: 100 standard 30-year fixed-rate mortgage loans with a nominal annual rate of 5.25% each for $250,000

• Commercial loan: 3-year loan, simple interest paid monthly at 0.75% per month

What does the bank balance sheet look like?

(b) (10pt) On the second day, NewBank decides to invest $45 million in 30-day Treasury bills. The Treasury bills are currently trading at $4,986.70 for a $5,000 face value instrument. How many do they purchase? What does the balance sheet look like?

(c) (10pt) On the third day, deposits fall by $5 million. What does the balance sheet look like? Are there any problems?

(d) (10pt) To meet any shortfall in the previous question, NewBank will borrow the cash in the federal funds market. Management decides to borrow the needed funds for the month. The required yield on a discount basis is 2.9% annually. What does the balance sheet look like after the transaction?