8. Suppose a bank issues equity worth $2 million and buys a government bond worth $2 million. (a) Describe the balance sheet of the bank. (b) Now the bank enters into a repurchase agreement where it sells the government bond to an investor with an agreement to buy it back at a later date. If the haircut on the government bond is 2%, how much is the bank borrowing? Suppose the bank uses the borrowed money to buy another government bond and again enters into another repo to borrow. How much does the bank borrow now? (Haircuts on government bonds keep being 2%.) (d) If the bank repeats the process described in (c) over and over again (ad infinitum), what is the maximum amount the bank will be able to borrow in total? You need to sum all the amounts the bank borrows from each repo transaction: it is an infinite sum. (e) How does the maximum amount the bank can borrow that you found in to the haircut? How does this amount change if the haircut increases to 4%