26-91 What amount of demand deposits are needed to fund the mortgage?
A)$5,500,000.
B)$400,000.
C)$5,333,333.
D)$500,000.
E)$5,000,000.

Question

Quizplus · Accepted Answer

To fund the mortgage, the bank needs to have enough demand deposits to cover the $5 million mortgage, plus the required 7% reserve ratio. Therefore, the total amount of demand deposits needed will be $5,350,000 ($5,000,000 divided by 0.93). However, since the question is asking for the amount of demand deposits needed to fund the mortgage, the correct answer is C, which is the closest option at $5,333,333.

26-91 What Amount of Demand Deposits Are Needed to Fund