Question: Consider a bank owning assets whose value one year from now will depend on the state of the market as described in the table below

Consider a bank owning assets whose value one year from now will depend on the state of the market as described in the table below ("Base Case"). Each of the three possible states are equally likely. The bank has promised to pay its depositors $90 at the end of the year. The deposits are guaranteed by the FDIC.

Base Case

BUST: Asset=70 FDIC= 20 Deposits=90 Equity=0

NORMAL: Asset=100 FDIC=0 Deposits=90 Equity=10

AVERAGE: Asset= _130_ FDIC= _0_ Deposits =_90_ Equity= _40_

What is the value of the FDIC guarantee and of the other balance sheet items in the base case?

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