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Please just solve part D only Show all steps of your work clearly to ensure partial credit. a. (2 points) Suppose that bank JP Goldman
Please just solve part D only
Show all steps of your work clearly to ensure partial credit.
a. (2 points) Suppose that bank JP Goldman has $1B in equity, and $10B in assets. Draw the bank's balance sheet and calculate its leverage. b. (2 points) Suppose that the value of assets drops by 4%. Calculate the bank's new level of leverage. How many assets does the bank need to sell to restore its previous level of leverage? C. (2 points) Now, consider bank Lehman Sisters, which has $2B in equity, and $10B in assets. Draw the bank's balance sheet and calculate its leverage. d. (2 points) Suppose that the value of assets drops by 4%. Calculate the bank's new level of leverage. How many assets does the bank need to sell in this case to restore its previous level of leverage? e. (2 points) From the analysis above, provide a reason why regulators may require banks to hold higher levels of equity. Relate your analysis to the notion of contagion. (Hint: what happens to the price of a security when its supply increases)Step by Step Solution
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