Please help, thanks.

Please help, thanks.

Please help, thanks.

Please help, thanks.

Consider the following balance sheets of two banks. These two banks have equal amounts of assets but are leveraged differently. Assume that there is no regulatory capital requirement. Balance Sheet of Arch Bank Assets Liabilities Outstanding Loans: $200,000 Deposits (Liabilities): $160,000 Capital (Net worth): $40,000 Total: $200,000 Total: $200,000 Balance Sheet of Medes Bank Assets Liabilities Outstanding Loans: $200,000 Deposits (Liabilities): $180,000 Capital (Net worth): $20,000 Total: $200,000 Total: $200,000 Which bank has a lower leverage ratio? O Medes Bank O Arch BankSuppose both banks' assets increase by 10% to $220,000. Assume that the liabilities of both banks remain the same. Arch Bank's capital increases by V , and Medes Bank's capital increases by V . Therefore, if the value of assets is rising and liabilities do not change, a higher leverage ratio results in a V percentage increase in capital. Now suppose all the items in the balance sheets of both banks return to their initial values. Suddenly, banks realize that loans they made are riskier than they thought, and the total value of their assets declines by 10% to $180,000. Again, assume that the liabilities of both banks remain the same. Arch Bank's capital decreases by V , and Medes Bank's capital decreases by V . Therefore, if the value of assets is falling, a higher leverage ratio means a V percentage decrease in capital. Under this second scenario, which bank is closer to insolvency? 0 Arch Bank 0 Medes Elank Suppose both banks' assets increase by 10% to $220,000. Assume that the liabilities of both banks remain the sat V , and Medes Bank's capital increases by V . Therefore, if the value of assets is rising and liat ratio results in a V percentage increase in capital. pose all the items in the balance sheets of both banks return to their initial values. Suddenly, banks realiz: thought, and the total value of their assets declines by 10% to $180,000. Again, assume that the liabilit' k's capital decreases by V , and Medes Bank's capital decreases by V . Therefore, if th leverage ratio means a V percentage decrease in capital. ssets increase by 10% to $220,000. Assume that the liabilities of both banks rer es Bank's capital increases by . Therefore, if the value of assets is ris na percentage it capital. 100% ems in the balance sheets of b 10% 5 return to their initial values. Suddenly, b d the total value of their assets by 10% to $180,000. Again, assume tha 150% creases by , and M k's capital decreases by The percentage decrease in capital.Suppose both banks' assets increase by 10% to $220,000. Assume that the liabilities of both banks remain the sa , and Medes Bank's capital increases by . Therefore, if the value of assets is rising and lia everage ratio results in a percentage increase in capital. Now suppose all the items smaller ance sheets of both banks return to their initial values. Suddenly, banks realiz than they thought, and th greater we of their assets declines by 10% to $180,000. Again, assume that the liabili Arch Bank's capital decreases by , and Medes Bank's capital decreases by . Therefore, if tnought, and the total value of their assets declines by 10% to $180,000. Again, assume that the liabilities of both bar capital decreases by , and Medes Bank's capital decreases by . Therefore, if the value of ass 10 means a centage decrease in capital. 50% second scenario, which 40% s closer to insolvency? ich Bank 10% edes Bankand the total value of their assets declines by 10% to $180,000. Again, assume that the liabilities of both bar decreases by , and Medes Bank's capital decreases by . Therefore, if the value of asse sa percentage decrease in capital. 100% cenario, which bank is closer to insolvency? 10% 150% nkthought, and the total value of their assets declines by 10% to $180,000. Again, assume that the liabilitie s capital decreases by , and Medes Bank's capital decreases by . Therefore, if the tio means a percentage decrease in capital. smaller second scent bank is closer to insolvency? greater Arch Bank