Jen is comparing the performance of two banks (A and B). She started her analysis by collecting the following information for the two banks: Total Assets (A) = $220M, Total Liabilities (A) =$176M, Total Assets (B) = $160M, and Total Liabilities (B) = $146M. She also estimated that: ROA (A) = 1.20% and Tax Rate (A) = Tax Rate (B) = 25%. She also noticed that the liabilities of each bank consist only of deposits and that both banks pay the same rate on these claims (0.40% per year). Julia wants to analyze the role of leverage in driving differences in the measured performance (ROA and ROE) of the banks. She noticed that bank B has higher leverage, and wondered how the performance of bank A would mechanically change if its leverage increased to the same level as bank B (with no other changes). In other words, you should assume that the change in leverage will only affect the interest expense and the equity of the bank (with no effect on other portions of their financial statements).

What would be the ROA and ROE of bank A if its leverage increased to the same level as the one in bank B (no other change)?

Group of answer choices

The ROA and ROE of bank A would become 1.20% and 13.3%, respectively.

The ROA and ROE of bank A would become 1.23% and 13.7%, respectively.

The ROA and ROE of bank A would become 1.17% and 5.8%, respectively.

The ROA and ROE of bank A would become 1.17% and 13.0%, respectively.

The ROA and ROE of bank A would become 1.20% and 6.0%, respectively.