Sam Has $500 in Traveler's Checks

question 262

Multiple Choice

Sam has $500 in traveler's checks. He cashes a $100 traveler check, deposits $150 into his checking account at a Savings and Loan Association, and deposits the remaining $250 into a savings account at a credit union. Immediately,

• A) M1 decreases by $250 and M2 does not change.
• B) M1 decreases by $400 and M2 increases by $250.
• C) M1 does not change and M2 increases by $250.
• D) M1 and M2 do not change.

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Definitions:

Total Asset Turnover

A ratio calculating how effectively a company utilizes its assets to produce sales income.

Return on Equity

A measure of a corporation's profitability, indicated by the amount of net income returned as a percentage of shareholders equity.

Return on Assets

A financial ratio indicating how efficiently a company uses its assets to generate profit.

Equity Multiplier

An equity multiplier is a financial ratio that measures the proportion of a company’s total assets financed by its shareholders' equity, demonstrating the degree of financial leverage being used.