The table below shows the balance sheet of Eubank.If the interest rate on loans is 10 percent,the annual cost to Eubank of holding excess reserves is:Table 14.1?EUBANK? Assets Liabilities and Net Worth Deposits at the Fed $ 40 , 000 Checkable deposits $ 500 , 000 Cash $ 10 , 000 Net Worth $ 20 , 000 Loans $ 300 , 000 Securities $ 150 , 000 Fed Stock $ 20 , 000 \begin{array} { | l | r | r | r | } \hline ext { Assets } & { ext { Liabilities and Net Worth } } & \\hline & & & \\hline ext { Deposits at the Fed } & \$ 40,000 & ext { Checkable deposits } & \$ 500,000 \\hline ext { Cash } & \$ 10,000 & ext { Net Worth } & \$ 20,000 \\hline ext { Loans } & \$ 300,000 & & \\hline ext { Securities } & \$ 150,000 & & \\hline ext { Fed Stock } & \$ 20,000 & & \\hline\end{array} Assets Deposits at the Fed Cash Loans Securities Fed Stock Liabilities and Net Worth $40 , 000 $10 , 000 $300 , 000 $150 , 000 $20 , 000 Checkable deposits Net Worth $500 , 000 $20 , 000 A) 10 percent of $500,000.B) 10 percent of net worth.C) 10 percent of excess reserves.D) $10,000.E) 0.

Question

The table below shows the balance sheet of Eubank.If the interest rate on loans is 10 percent,the annual cost to Eubank of holding excess reserves is:Table 14.1?EUBANK?  Assets   Liabilities and Net Worth   Deposits at the Fed  $ 40 , 000  Checkable deposits  $ 500 , 000  Cash  $ 10 , 000  Net Worth  $ 20 , 000  Loans  $ 300 , 000  Securities  $ 150 , 000  Fed Stock  $ 20 , 000 \begin{array} { | l | r | r | r | } \hline 	ext { Assets }  &   { 	ext { Liabilities and Net Worth } }  &  \\hline  &   &   &  \\hline 	ext { Deposits at the Fed }  &  \$ 40,000  &  	ext { Checkable deposits }  &  \$ 500,000 \\hline 	ext { Cash }  &  \$ 10,000  &  	ext { Net Worth }  &  \$ 20,000 \\hline 	ext { Loans }  &  \$ 300,000  &   &  \\hline 	ext { Securities }  &  \$ 150,000  &   &  \\hline 	ext { Fed Stock }  &  \$ 20,000  &   &  \\hline\end{array}  Assets   Deposits at the Fed   Cash   Loans   Securities   Fed Stock  ​  Liabilities and Net Worth  $40 , 000 $10 , 000 $300 , 000 $150 , 000 $20 , 000 ​  Checkable deposits   Net Worth  ​ $500 , 000 $20 , 000 ​ ​ A) 10 percent of $500,000.B) 10 percent of net worth.C) 10 percent of excess reserves.D) $10,000.E) 0.

Jacinda Gonzales · Accepted Answer

Final Answer : C, Explanation :  The annual cost of holding excess reserves is calculated by applying the interest rate to the amount of excess reserves. Since the question specifies a 10 percent interest rate, the correct answer involves applying this rate to the excess reserves, not to the total deposits, net worth, or any other figure.

Definitions

Learning Objectives

Learning Objectives

Related questions