Question: Oriole Savings Association has a ratio of equity capital to
Oriole Savings Association has a ratio of equity capital to total assets of 9 percent. In contrast, Cardinal Savings reports an equity-capital-to-asset ratio of 7 percent. What is the value of the equity multiplier for each of these institutions? Suppose that both institutions have an ROA of 0.67 percent. What must each institution’s return on equity capital be? What do your calculations tell you about the benefits of having as little equity capital as regulations or the marketplace will allow?
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