Question: Q. Answer the following questions. (10 points) Give an example of a bank balance sheet with a leverage ratio of 15. If the value of

Q. Answer the following questions. (10 points)

  1. Give an example of a bank balance sheet with a leverage ratio of 15.
  2. If the value of the banks assets rises by 10%, what happens to the value of the owners equity in this bank? What assumptions are you making? Make sure to change your answer in terms of a change and a percentage change?
  3. How large in the decline in the value of bank assets would it take to reduce this banks capital to zero? Express in terms of a change and percentage change.
  4. Why are highly leveraged banks vulnerable?

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