Bank Leverage. Suppose Bill Gates decides to open his own bank, called ABC. As owner, Bill Gates puts in $1,000 of his own money. ABC then borrows $2,000 in a long-term loan, accepts $7,000 is demand deposits, buys $3,500 of U.S. Treasury bonds, lends $5,000, and keeps the remainder of the banks assets as reserves at the Fed.

a.) In general, reserves held at the Fed are considered the most liquid of all bank assets. What does the term liquidity mean?

b.) Fill in the missing values below to construct ABCs balance sheet. What is ABCs leverage ratio?

Assets	Liabilities
Loans, $__________	Deposits, $__________
Securities, $__________	Debt, $__________
Reserves, $__________	Capital, $__________

c.) Suppose an economic downturn causes 10 percent of borrowers to default on their loans. Fill in the missing values below to construct ABCs new balance sheet.

Assets	Liabilities
Loans, $__________	Deposits, $__________
Securities, $__________	Debt, $__________
Reserves, $__________	Capital, $__________

d.) Suppose that, prior to the downturn, the government puts in place a 50% capital requirement. Assume Bill Gates is not willing to make any further investment in ABC. Fill in the missing values below to show how ABC adjusts its balance sheet to meet the capital requirement. Also, calculate ABCs new leverage ratio. (Note: The requirement is imposed before the downturn. That is, the adjustment will be made to the balance sheet from part b.).)

Assets	Liabilities
Loans, $__________	Deposits, $__________
Securities, $__________	Debt, $__________
Reserves, $__________	Capital, $__________

PLEASE ANSWER ALL PARTS AND SHOW WORK