You are considering buying stock in the following two banks. Each of the banks is financed by 10% equity and 90% interest paying deposits.

• Bank One has assets comprised of 10-year loans to firms with credit ratings below investment-grade.
• Bank Two has assets comprised solely of short-term Treasury bills.

In which of the following scenarios would you prefer to buy the stock of Bank One rather than Bank Two? You can pick more than one.

You expect a recession You expect a sharp increase in inflation You expect an economic boom You expect long-term interest rates to fall