(10 points) a (2 points) Consider a bank that has $1M in equity, and $10M in assets Draw the bank's balance sheet and calculate its leverage b (2 points) Suppose that the value of assets drops by 5 Calculate the bank's new level of leverage How many assets does the bank need to sell to restore its previous level of leverage c (2 points) Consider another bank that has $2M in equity, and $10M in assets Draw the bank's balance sheet and calculate its leverage d (2 points) Suppose that the value of assets drops by 5 Calculate the bank's new level of leverage How many assets does the bank need to sell in this case to restore its previous level of leverage e ( 2 points) From the analysis above, provide a reason why regulators may require banks to hold higher levels of equity Relate your analysis to the notion of contagion (10 points) a (2 points) Consider a bank that has $1M in equity, and $10M in assets Draw the bank's balance sheet and calculate its leverage b (2 points) Suppose that the value of assets drops by 5 Calculate the bank's new level of leverage How many assets does the bank need to sell to restore its previous level of leverage c (2 points) Consider another bank that has $2M in equity, and $10M in assets Draw the bank's balance sheet and calculate its leverage d (2 points) Suppose that the value of assets drops by 5 Calculate the bank's new level of leverage How many assets does the bank need to sell in this case to restore its previous level of leverage e ( 2 points) From the analysis above, provide a reason why regulators may require banks to hold higher levels of equity Relate your analysis to the notion of contagion

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(10 points) a  (2 points) Consider a bank that has $1M in equity, and $10M in assets  Draw the bank's balance sheet and calculate its leverage  b  (2 points) Suppose that the value of assets drops by 5   Calculate the bank's new level of leverage  How many assets does the bank need to sell to restore its previous level of leverage  c  (2 points) Consider another bank that has $2M in equity, and $10M in assets  Draw the bank's balance sheet and calculate its leverage  d  (2 points) Suppose that the value of assets drops by 5    Calculate the bank's new level of leverage  How many assets does the bank need to sell in this case to restore its previous level of leverage  e  ( 2 points) From the analysis above, provide a reason why regulators may require banks to hold higher levels of equity  Relate your analysis to the notion of contagion  (10 points) a  (2 points) Consider a bank that has $1M in equity, and $10M in assets  Draw the bank's balance sheet and calculate its leverage  b  (2 points) Suppose that the value of assets drops by 5   Calculate the bank's new level of leverage  How many assets does the bank need to sell to restore its previous level of leverage  c  (2 points) Consider another bank that has $2M in equity, and $10M in assets  Draw the bank's balance sheet and calculate its leverage  d  (2 points) Suppose that the value of assets drops by 5    Calculate the bank's new level of leverage  How many assets does the bank need to sell in this case to restore its previous level of leverage  e  ( 2 points) From the analysis above, provide a reason why regulators may require banks to hold higher levels of equity  Relate your analysis to the notion of contagion

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(10 points) a. (2 points) Consider a bank that has $1M in equity, and $10M in assets. Draw the bank's balance sheet and calculate its

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