Question: Question 6 Introduction (2 Parts, 30 points total) Based on the information provided below about banks A and B, compute for each bank its return

Question 6 Introduction

(2 Parts, 30 points total)

Based on the information provided below about banks A and B, compute for each bank its return on assets (ROA), return on equity (ROE) and leverage ratio (bank assets divided by bank capital).

Bank A has net profit after taxes of $1.8 million and the balance sheet below:

BankA

(in millions)

Assets

Liabilities

Reserves

Deposits

$100

Loans

$ 70

Borrowing

$ 10

Securities

$ 45

Bank Capital

$ 10

Bank B has net profit after taxes of $0.9 million and the balance sheet below:

Bank B

(in millions)

Assets

Liabilities

Reserves

$7.5

Deposits

$75.0

Loans

$55.0

Borrowing

$ 3.0

Securities

$23.5

Bank Capital

$ 8.0

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