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2. (6 points) A bank has book value of $5 million in liquid assets, $95 million in loans, 590 million in millton in equity. Some loans default so that the bank writes off $5 milhon bad Assets Liquid Assets Loans Liabilities and equity Deposits Equity 90 10 95 5, 21e %. The proportion of bad loans out of original amount of loans is Workout: loans reduce, equity reduces. The proportion of equity reduction out of original amount of Since equity is 50 % Workout: Based on the above results, does credit risk of loans have an enlarged or compressed effect on equity? Workout