2. Leverage and returns The following tables show the balance sheets of two banks: Big Bank and Small Bank. is a levered bank, while is an unlevered bank. Assume that both banks offer an annual rate of 3% on checking deposits and charge an annual rate of 5% on loans. For Small Bank, the annual interest cost on deposits is , and the annual return on loans is . Hence, Small Bank earns a net profit of , which represents a rate of return of (Hint: Round to 1 decimal place.) on stockholders' equity. For Big Bank, the annual interest cost on deposits is , and the annual return on loans is . Hence, Big Bank earns a net profit of , which represents a rate of return of (Hint: Round to 1 decimal place.) on stockholders' equity. Suppose that the value of loans in both banks declines by 10%. The amount of loans outstanding for Big Bank decreases from $250,000 to , which represents a loss of '(Hint: Round to 1 decimal place.) of stockholders' equity. The amount of loans outstanding for Small Bank decreases from $500,000 to , which represents a loss of (Hint: Round to 1 decimal place.) of stockholders' equity. Therefore, provides a higher rate of return to its investors, and exposes its investors to greater risk in the event of a decline in the value of Ioans