1. Assume that the following banks have the same Net income of 2 million, but they are different due to the capital structure:

BANK A

Reserves 960 Deposits 6800

Loans 7200 Bank Capital 1360

Total assets 8160 Total Liabilities and Equity 8160

BANK B

Reserves 960 Deposits 8000

Loans 7200 Bank Capital 160

Total assets 8160 Total Liabilities and Equity 8160

a. Which Bank is more attractive for shareholders? And why?

b. Which bank is riskier in case of loan depreciation at 200 million? Show your calculations to support your suggestions.

c. Find ROA and ROE for the two banks