Consider XYZ Bank that is established with $450bn of deposits and  $50bn of equity. Its assets are some investments that are expected to pay off $525bn. in 1 years time. There is no risk premium and investments are discounted at the rate of interest on safe assets which is 5% a year.

Suppose very shortly after being established the amount its investments are expected to pay off rises to $577.5bn in 1 years time. What is the return to equity in the bank?

Answer rating: 100% (QA)

XYZ Bank Has deposit 450Bn Equity 50Bn Total Lia... View the full answer