2. Consider an investment bank called Stear Bearns. It has loans 500, investments 700, and cash 300 on the asset sidef and it has short-run debt = 500 and long-run debt 700 on the liability side (all the figures are in billions of dollars). Cay By ow mch must the value of their investments fallfr Stear Bearns to become (e) Draw their balance sheet once it has become bankrupt. (f) What would your advice to Stear Bearns be if the goal was to decrease the prob- (g) Suppose the government imposes a capital requirement, i.e., a maximum value bankrupt? ability of defaulting? Why might Stear Bearns not have followed this path? for the leverage ratio. Take the Stear Bearns example above (with the initial balance sheet) and suppose the government imposes a maximum leverage ratio of 4. Suppose Stear Bearns is not able to adjust its long-run debt and has to adjust short-run debt to meet this requirement. Suppose moreover that it wishes to have 10% cash as a fraction of total assets but otherwise is happy to use cash to pay back debt and that it prefers to reduce investments rather than loans for any further asset deductions. What will its new balance sheet look like? 2. Consider an investment bank called Stear Bearns. It has loans 500, investments 700, and cash 300 on the asset sidef and it has short-run debt = 500 and long-run debt 700 on the liability side (all the figures are in billions of dollars). Cay By ow mch must the value of their investments fallfr Stear Bearns to become (e) Draw their balance sheet once it has become bankrupt. (f) What would your advice to Stear Bearns be if the goal was to decrease the prob- (g) Suppose the government imposes a capital requirement, i.e., a maximum value bankrupt? ability of defaulting? Why might Stear Bearns not have followed this path? for the leverage ratio. Take the Stear Bearns example above (with the initial balance sheet) and suppose the government imposes a maximum leverage ratio of 4. Suppose Stear Bearns is not able to adjust its long-run debt and has to adjust short-run debt to meet this requirement. Suppose moreover that it wishes to have 10% cash as a fraction of total assets but otherwise is happy to use cash to pay back debt and that it prefers to reduce investments rather than loans for any further asset deductions. What will its new balance sheet look like