Bank A has the following balance sheet: Assets Reserves $50 million Securities $50 million Loans $100...
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Bank A has the following balance sheet: Assets Reserves $50 million Securities $50 million Loans $100 million Bank B has the following balance sheet: Assets Reserves $50 million Securities $50 million Loans $150 million Liabilities Deposits $170 million Bank capital $30 million Liabilities Deposits $180 million Bank capital $20 million 1. (5pts.) Both banks earn $5 million as an annual after-tax profit. Calculate ROA (re ROE (return on equity) for both banks. 2. (5pts.) If $ 25 million loans default, how should the bank balance sheet change? 3. (6pts.) From parts 1 and 2, explain the trade-off of holding low capital. Bank A has the following balance sheet: Assets Reserves $50 million Securities $50 million Loans $100 million Bank B has the following balance sheet: Assets Reserves $50 million Securities $50 million Loans $150 million Liabilities Deposits $170 million Bank capital $30 million Liabilities Deposits $180 million Bank capital $20 million 1. (5pts.) Both banks earn $5 million as an annual after-tax profit. Calculate ROA (re ROE (return on equity) for both banks. 2. (5pts.) If $ 25 million loans default, how should the bank balance sheet change? 3. (6pts.) From parts 1 and 2, explain the trade-off of holding low capital.
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1 ROA and ROE calculations Bank A ROA Net Income Total Assets 5 million 200 million 25 ROE Net Income Shareholders Equity 5 million 30 million 1667 Ba... View the full answer
Related Book For
Intermediate Algebra
ISBN: 9780134895987
13th Edition
Authors: Margaret Lial, John Hornsby, Terry McGinnis
Posted Date:
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