A bank’s assets consist of:
Cash: ...... $1.5 million
Loans: ..... $10 million
Securities .... $4.5 million
Fixed assets ... $2 million
In addition, the bank’s owners’ capital is $1.5 million.
a. Calculate the equity capital ratio.
b. If $2 million in bad loans were removed from the bank’s assets, show how the equity capital ratio would change.