If a Bank Has Required Reserves of $27 Million and Deposits

question 5

Multiple Choice

If a bank has required reserves of $27 million and deposits of $90 million with a required reserve ratio of 30%,how much can the bank lend out?

• A) $8.1 million
• B) $27 million
• C) $63 million
• D) $90 million
• E) $117 million

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Definitions:

Internal Rate of Return

The discount rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Multiple IRRs

The situation where a project has more than one internal rate of return, occurring due to unconventional cash flows.

Reinvestment Assumption

The theory that cash flows will be reinvested at a constant rate, often used in financial modeling.

Cost of Capital

The rate of return that a business must achieve in order to generate value, representing the opportunity cost of investing capital in a specific business rather than in an alternative venture.