Answer to Question #189287 in Macroeconomics for celeste

Question

Assume R = 10%

 

b)   Suppose the bank’s investment portfolio value goes up from its initial level by 10%. Show the bank’s changed balance sheet. What would be the bank’s new capital and new leverage ratio? Show the percentage changes in bank capital and in its leverage ratio.

c)   Suppose due to a sudden stock market crash, the bank’s investment portfolio goes down from the initial level by 15%. Show the bank’s changed balance sheet. What would be the bank’s new capital and leverage ratio? Show the percentage changes in bank capital and in leverage ratio.  

Answer 1

b.banks balance sheet will change by 10% because bank capital wi go up with 10% as well as leverage ratio.

C.b.banks balance sheet will change by 15% because bank capital wi go up with 15% as well as leverage ratio