Consider a bank owning assets whose value one year from now will depend on the state of the market as described in the table below ("Base Case"). Each of the three possible states are equally likely. The bank has promised to pay its depositors $90 at the end of the year. The deposits are guaranteed by the FDIC.

Base Case

BUST: Asset=70 FDIC= 20 Deposits=90 Equity=0

NORMAL: Asset=100 FDIC=0 Deposits=90 Equity=10

BOOM: 130_ FDIC= _0_ Deposits =_90_ Equity= 40

AVERAGE:?

How much does the value of the FDIC guarantee change if the payoff schedule for the firm's assets is as shown for the "high risk case"? What happens to the value of equity?

HIGH RISK CASE:

ASSET: Bust=60 Normal=100 Boom=140 Average=_

GUARANTEE: Bust=? Normal=? Boom=? Average=?

DEBT: Bust=? Normal=? Boom=? Average=?

EQUITY: Bust=? Normal=? Boom=? Average=?