L'Oreal (bank account at Alpha Bank) issues $60,000 face value bonds for the price of $56,000; the bonds have a four year maturity and pay $5,000 coupons once a year. A third of the bonds are bought by Alpha Bank (transaction 1) while the other two thirds are bought by SuperManage, a managed fund banking at Beta bank (transaction 2). Conclude how the stock of bank deposits and the stock of central bank deposits in the financial system have changed as a result of these two transactions. Explain your answers.

L'Oreal (bank account at Alpha Bank) issues $60,000 face value bonds for the price of $56,000; the bonds have a four year maturity and pay $5,000 coupons once a year. A third of the bonds are bought by Alpha Bank (transaction 1) while the other two thirds are bought by SuperManage, a managed fund banking at Beta bank (transaction 2). Conclude how the stock of bank deposits and the stock of central bank deposits in the financial system have changed as a result of these two transactions. Explain your answers.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter9: The Cost Of Capital

Section: Chapter Questions

Problem 16P

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