1. Consider a bank has the following assets and liabilities:

- Loans of $100 million with a realized rate of 5%

- Security holdings of $50 millionearning 10% interest

- Reserves of $10 million

- Savings account of $100 million paying interest of 2.5%

- Checking deposits of $30 million which pay no interest

A. Set up the balance sheet for this bank

B. Determine ROA for this bank

C. Determine ROE for this bank

D. Suppose this bank calls in $10 million of it's good loans and writes off another $10 million of loans that turn out to be in default. What happens to this banks ROA and ROE?

E. Do you see any problems for this bank as a result of the actions taken in part D above? Explain carefully and fully.