Question: Lets assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts: Cash = $5 million Government securities

Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts:

Cash = $5 million

Government securities = $7 million

Mortgage loans = $30 million

Other loans = $50 million

Fixed assets = $10 million

Intangible assets = $4 million

Loan-loss reserves = $5 million

Owners’ equity =$5 million

Trust-preferred securities = $3 million

Cash assets and government securities are not considered risky. Loans secured by real estate have a 50 percent weighting factor. All other loans have a 100 percent weighting factor in terms of riskiness.

a. Calculate the equity capital ratio.

b. Calculate the Tier 1 Ratio using risk-adjusted assets

c. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio using risk-adjusted assets.

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