Suppose that a bank has $500 of equity capital, and at the beginning of the year, it is considering two different strategies for leverage: Strat a): EM = 4 Strat b): EM = 10

This year, there was an economic disaster, and the bank only received a payout of 2% on its assets (due to many debtors defaulting), but it had to pay out 5% in interest on its liabilities.

How much money would the bank lose if it went with strategy A?

How much money would the bank lose if it went with strategy B?