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The following tables show the balance sheets of two banks: Big Bank and...

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Accounting

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The following tables show the balance sheets of two banks: Big Bank and Small Bank. Big Bank Balance Sheet Assets Liabilities and Net Worth Checking deposits $300,000 Loans outstanding $250,000 Stockholders' equity $50,000 Total $350,000 Reserves $100,000 Total $350,000 Small Bank Balance Sheet Assets Liabilities and Net Worth Reserves $0 Checking deposits Loans outstanding $500,000 Stockholders' equity $500,000 Total $500,000 Total $500,000 is a levered bank, while is an unlevered bank Assume that both banks offer an annual rate of 2% on checking deposits and charge an annual rate of 4% on loans For Small Bank, the annual interest cost on deposits is $ a net profit of $ , and the annual return on loans is$ . Hence, Small Bank earns , which represents a rate of return of % (Hint: Round to 1 decimal place.) on stockholders' equity For Big Bank, the annual interest cost on deposits is $ profit of s , and the annual return on loans is$ . Hence, Big Bank earns a net which represents a rate of return of 90 (Hint: Round to 1 decimal place.) on stockholders' equity

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