If the government pays 25 for the troubled assets, what will be the value of the bank’s capital? How much would the government have to pay for the troubled assets to ensure that the bank’s capital does not have a negative value? If the government pays 45 for the for the troubled assets, but the true value turns out to be much lower, who bears the cost of this mistaken valuation? Explain!

The Troubled Asset Relief Program (TARP) was design by the government in order to purchase assets with low value that do not have functionality for the market anymore.

Explanation:

The Troubled Asset Relief Program (TARP) was design by the government in order to purchase assets with low value that do not have functionality for the market anymore. The program was designed to help overcome the recovery of the economic crisis that occurred between 2007 and 2010, in which previously the prices of real estate had dropped significantly. Reason why, investments in householding were reduced and subsequently also in business.

The purpose of the program also included the selling of these assets later on, to be able to recover all the investments during the economic recession. At the end of the program in 2014, there were some profits of $15.3 billion. The government initially made an investment of $426.4 billion and at the end of the program they were able to register $441.7 billion.