The following information is for questions 1-4. Cash Required Reserves Loans $2 million $10 million $12 million Deposits Long-term Debt Equity Total $8 million $2 million $2 million $12 million Total The average interest earned on the loans is 6% and the average cost of deposits is 59 rates are expected to reduce the deposits by $3 million. Borrowing more debt will cost the bank 55% in the short term. Rising interest hat will be the size of the bank if a stored liquidity management strategy is adopted? A. $9 million B. $11 million C. $12 million D. $14 million E. $15 million What will be the cost of using a strategy of reducing its asset base to meet the expected decline in deposits? Assume that the bank intends to keep $2 million in cash as a liquidity precaution HINT: Cost of strategy Interest expense saved -interest income lost A. $10,000 B. $15,000 C. $30,000 D. $40,000 E. $50,000 2. What will be the size of the bank if a purchased liquidity management strategy is adopted? A. $9 million B. $11 million C. $12 million D. $14 million E. $15 million 3. What will be the cost of using a strategy of purchased liquidity management to meet the expected decline in deposits? Assume that the bank intends to keep $2 million in cash as a liquidity precaution. HINT: Cost o strategy = Interest expense saved additional interest expense A. $10,000 B. $15,000 C. $30,000 D. $40,000 E. $50,000 4