Solve clearly

Assume that both banks offer an annual rate of 4% on checking deposits and charge an annual rate of #% on loans. For Small Bank, the annual interest cost on deposits is $ and the annual return on loans is $ . Hence, Small Bank cams a net profit of S , which represents a rate of return of (Hint: Round to 1 decimal place.) on stockholders' equity. For Big Bank, the annual interest cost on deposits is and the annual return on loans is$ . Hence, Big Bank cars a net profit of S which represents a rate of return of (Hint: Round to 1 decimal place,) on stockholders equity. Suppose that the value of loans in both banks declines by 10%. The amount of loans outstanding for Big Bank decreases from $250,000 to , which represents a loss of (Hint: Round to 1 decimal place.) of stockholders' equity, The amount of loans outstanding for Small Bank decreases from $500,000 to 5 which represents a loss of (Hint: Round to ] decimal place.) of stockholders' equity. Therefore, provides a higher rate of return to its investors, and exposes its investors to greater risk in the event of a decline in the value of loans.2. Leverage and returns The following tables show the balance sheets of two banks: Big Bank and Small Bank. Big Bank Balance Sheet Assets Liabilities and Net Worth Reserves $100,000 Checking deposits $300,000 Loans outstanding $250,000 Stockholders' equity $50,000 Total $350,000 Total $350,000 Small Bank Balance Sheet Assets Liabilities and Net Worth Reserves $0 Checking deposits SO Loans outstanding $500,000 Stockholders' equity $500,000 Total $500,000 Total $500,000 Big Bank * is a levered bank, while Small Bank % is an unlevered bank