Suppose you are the CFO of a bank with the following Balance Sheet and that the required reserve ratio is 10% : Notice that the bank issues bonds. Recall that bonds are debt instruments. An internal report produced by one of you analysts forecasts that the bank will face a deposit outflow of $20 and losses of $20 ( $5 coming from securities and $15 from loans). 1. Should the bank increase its capital? Why? (5\%) 2. Suppose the bank issues a 10-yr bond (this is a liability) which is sold for $20. Assume the revenues of this sale are credited into the bank's reserves. Show this change using a T-account. (5\%) 3. Do these new funds solve the potential solvency issue? Why? (5\%) 4. Suppose the bank cannot issue equity at the moment. If the expected net earnings of the period are $25, what is the least amount of earnings that the bank should retain to strengthen its capital position? (5\%) Suppose you are the CFO of a bank with the following Balance Sheet and that the required reserve ratio is 10% : Notice that the bank issues bonds. Recall that bonds are debt instruments. An internal report produced by one of you analysts forecasts that the bank will face a deposit outflow of $20 and losses of $20 ( $5 coming from securities and $15 from loans). 1. Should the bank increase its capital? Why? (5\%) 2. Suppose the bank issues a 10-yr bond (this is a liability) which is sold for $20. Assume the revenues of this sale are credited into the bank's reserves. Show this change using a T-account. (5\%) 3. Do these new funds solve the potential solvency issue? Why? (5\%) 4. Suppose the bank cannot issue equity at the moment. If the expected net earnings of the period are $25, what is the least amount of earnings that the bank should retain to strengthen its capital position? (5\%)