Question
Assets Liabilities Reserves 250 Deposits Required __ Transaction (checking) deposits 1000 Excess __ Savings deposits 3000 Loans Money Market deposits 500 Variable rate loans 750
| Assets | Liabilities | ||
|---|---|---|---|
| Reserves | 250 | Deposits | |
| Required | __ | Transaction (checking) deposits | 1000 |
| Excess | __ | Savings deposits | 3000 |
| Loans | Money Market deposits | 500 | |
| Variable rate loans | 750 | Time deposits (CDs) | |
| Short-term loans | 1600 | Fixed rate | 500 |
| Long-term fixed rate loans | 2000 | Variable rate | 100 |
| Securities | Borrowing | ||
| Short-term securities | 500 | Fed funds borrowed | 0 |
| Long-term securities | 600 |
a) Refer to the bank balance sheet above. Suppose values are in millions of dollars. Suppose return on assets (ROA) is 1.2%. Suppose bank owners convince bank managers to borrow 1000 million from other banks and make more loans. What is the new leverage ratio?
b) Refer to the bank balance sheet above. Suppose values are in millions of dollars. Suppose return on assets (ROA) is 1.2%. Suppose bank owners convince bank managers to borrow 1000 million from other banks and make more loans. Assuming no change in ROA, What is the new value for ROE?
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
