Table 1: T-Account for Bank A in February 2020 Assets Liabilities plus Equity Loans: $ 800...
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Table 1: T-Account for Bank A in February 2020 Assets Liabilities plus Equity Loans: $ 800 Deposits: $1200 Securities: $ 400 Borrowings: $400 Reserves: $ 600 Equity: ? The interest rate on loans is 8%, the average return for securities is 5%, the interest rate on reserves is 2%, the interest rate on deposits is 1%, the interest rate on borrowings is 1%. Please answer the following questions based on the information shown in Table 1. 1. Please calculate the equity value, capital ratio and the return on equity? The outbreak of COVID19 in March 2020 may affect the management of a com- mercial bank in the following ways. First, the value of securities decreases to $320 because the stock price plunged significantly. Second, $50 loans get defaulted be- cause the borrowers' financial situation deteriorates. Third, depositors needs to withdraw $200 dollars to maintain their living. With the above three changes, what is the new equity and capital ratio of the commercial bank? Explain whether the commercial bank is facing a higher or lower risk of going bankruptcy? Table 1: T-Account for Bank A in February 2020 Assets Liabilities plus Equity Loans: $ 800 Deposits: $1200 Securities: $ 400 Borrowings: $400 Reserves: $ 600 Equity: ? The interest rate on loans is 8%, the average return for securities is 5%, the interest rate on reserves is 2%, the interest rate on deposits is 1%, the interest rate on borrowings is 1%. Please answer the following questions based on the information shown in Table 1. 1. Please calculate the equity value, capital ratio and the return on equity? The outbreak of COVID19 in March 2020 may affect the management of a com- mercial bank in the following ways. First, the value of securities decreases to $320 because the stock price plunged significantly. Second, $50 loans get defaulted be- cause the borrowers' financial situation deteriorates. Third, depositors needs to withdraw $200 dollars to maintain their living. With the above three changes, what is the new equity and capital ratio of the commercial bank? Explain whether the commercial bank is facing a higher or lower risk of going bankruptcy?
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