5. Piggy Bank's balance sheet consists of the following. Assets: $250K of reserves, $1000K of Commercial Loans, $1000K of Mortgages, and $150K of government securities. Liabilities: $2000K of Deposits, $200K loans from Test Bank. Banks are required to hold 10% of deposits in the form of reserves. Furthermore, banks are required to maintain a risk adjusted capital asset ratio of 10%. The weights for risk adjusted asset value is 1 for commercial loans, .5 for mortgages and zero for reserves and government securities. Assume that it is relatively easy to liquidate government securities but much more difficult to liquidate mortgages and commercial loans or to borrow from other financial institutions. a. (5 points) Write out Piggy Bank's balance sheet (T-account). b. (5 points) What is the amount of bank capital? Does Piggy bank have sufficient capital to satisfy the capital/risk adjusted asset ratio? (show work) c. (5 points) Depositors fearing a bank run get nervous and suddenly withdraw $200K in deposits from their Piggy Bank. What steps should Piggy Bank take to meet the deposit withdrawal and still satisfy the required reserve ratio and the risk adjusted capital/asset ratio? d. (5 points) Interest rates increase 1 percentage point affecting the value of Piggy Bank's assets. Assume that the duration for reserves and government securities is zero, the duration for commercial loans is 10, and the duration for mortgages is 15. What does the Piggy Bank's balance sheet look like after taking into account the change in asset values? Is it still solvent? Does it meet the required risk adjusted capital/asset ratio? Show work. e. (5 points) The Federal Reserve announces that it will provide additional capital so that Piggy Bank can meet its risk adjusted capital/asset ratio. Assume that all of the new capital will be used to purchase government securities. How much capital must be injected and what does the balance sheet look like after the injection. Show work. f. (5 points) Piggy Bank's loan from Test Bank expires and is not renewed. What does the Piggy Bank's balance sheet look like once it has made all the necessary adjustments so that it meets its required reserve ratio and its risk adjusted capital/asset ratio