Lets assume that you have been asked to calculate risk-based capital ratios for a bank with the
Question:
Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts:
Cash = $15 million
Government securities = $17 million
Mortgage loans = $40 million
Other loans = $60 million
Fixed assets = $20 million
Intangible assets = $14 million
Loan-loss reserves = $15 million
Common equity = $15 million
Trust-preferred securities = $13 million
Cash assets and government securities are not considered risky.
Loans secured by real estate have a 50 percent weighting factor. All other loans have a 100 percent weighting factor in terms of riskiness.
Required
a. Calculate the common equity capital ratio.
b. Calculate the tier 1 ratio using risk-adjusted assets.
c. Calculate the total capital (tier 1 plus tier 2) ratio using risk-adjusted assets.
Introduction to Finance Markets Investments and Financial Management
ISBN: 978-1118492673
15th edition
Authors: Melicher Ronald, Norton Edgar