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  3. question b4 15 marks bank leverage then and now sbn...

Question: question b4 15 marks bank leverage then and now sbn...

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Question B4 (15 marks) Bank leverage then and now Sbn Equity Assets 2007 2017 Citigroup 19x 9x JPMorgan Chase 13 10 Goldman Sachs 26 11 Morgan Stanley 33 11 Merrill Lynch 32 9 Lehman Brothers 31 Bear Stearns 0 500 1.000 1,500 2,000 2.500 O 500 1.000 1.500 2.000 2.500 2007 figures reflect Merrill Lynch figures and 2017 figures reflect Bank of America Merrill Lynch afr ne a) Use the above information to determine the two riskiest banks in 2007 and the two riskiest banks in 2017 (2 marks) b) Which type of risk is illustrated by the above graph? (1 mark) c) Assume that all banks had a return on assets of 1.5% and calculate the return on equity in 2017 for all banks (2 marks) d) Explain the trade-off between return on equity and risk and elaborate on the impact of limited liability upon the bankers risk return trade-off. (5 marks) e) Which type of regulation is meant to decrease the problem caused by bank owners limited liability? (2 marks) f) Use the information in the graph to explain if it would have been easier to get a mortgage in 2007 or in 2017. (3 marks)

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