Bank Y and Bank Z both have assets of $1 billion. The return on assets for both banks is the same. Bank Y has liabilities of $600 million while Bank Zs liabilities are $700 million. In which bank would you prefer to hold an equity stake?

• Bank Y

• Bank Z

• It depends on your preference for return versus risk

Explain your choice.

Instructions: Enter your numeric responses rounded to the nearest whole number. If both banks have $1 billion in assets and have the same return on assets, then net profit after taxes must be the same for the two banks. Bank Y has bank capital of $ ____ million while Bank Z has bank capital of $ __ million, so the return on equity is higher for Bank Z.