Wide Bank Balance Sheet Assets Liabilities and Net Worth Reserves $100,000 Checking deposits $450,000 Loans outstanding $400,000 Stockholders' equity $50,000 Total $500,000 Total $500,000 Narrow Bank Balance Sheet Assets Liabilities and Net Worth Reserves $0 Checking deposits Loans outstanding $100,000 Stockholders' equity $100,000 Total $100,000 Total $100,000 is a levered bank, while is an unlevered bank. Assume that both banks offer an annual rate of 3% on checking deposits and charge an annual rate of 5% on loans For Narrow Bank, the annual interest cost on deposits is$ and the annual return on loans is$ . Hence, Narrow Bank earns a net profit of $ which represents a rate of return of (Hint: Round to 1 decimal place.) on stockholders' equity For Wide Bank, the annual interest cost on deposits is$ and the annual return on loans is$ . Hence, Wide Bank earns a net profit of $ , 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 Wide Bank decreases from $400,000 to , which represents a loss of % (Hint: Round to 1 decimal place.) of stockholders' equity. The amount of loans outstanding for Narrow Bank decreases from $100,000 to $ , which represents a loss of % (Hint: Round to 1 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