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 $750 million while Bank Zs liabilities are $850 million. In which bank would you prefer to hold an equity stake?

multiple choice 1

• It depends on your preference for return versus risk

• Bank Z

• Bank Y

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 (Click to select) the same different 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 (Click to select) higher lower for Bank Z. Bank Z has a (Click to select) higher lower leverage ratio than Bank Y, however, a higher portion of its assets is financed from (Click to select) nonborrowed borrowed funds. Therefore, Bank Z represents a (Click to select) safer riskier investment.