Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 16

Table 16P-7 shows the balance sheet of a bank in millions of dollars.
a. What is the bank's net worth?
b. Assume housing prices increase and defaults on subprime mortgages rise, causing the bank's assets in subprime mortgages to decrease from 500 to 350. What are total assets now? What is the bank's new net worth?
c. How far would the value of subprime mortgages have to fall to cause the bank to be insolvent (that is, for liabilities to be greater than assets)?