Question: 11

Fells Wargo Bank has the following balance sheet (in millions):

Assets			Liabilities and Equity
Type	$million	Risk Category	Type	$million
A-rated Commercial loans	700	1	Deposit	1200
Residential mortgages	300	1	Subordinated bonds	200
C-rated Commercial loans	200	2	Common stock	20
Cash	300	3	Retained Earnings	80

In addition, the bank has a $10 million performance-related standby letter of credit to a company in the risk category 2 and $50 million in 6-month FX forward contracts with a replacement cost of - $1 million.

The banks assets fall in 3 categories (Category 1 3) with various levels of credit risk. The risk weight assigned to each category is one of the following three:

0, 50%, 100%

where each weight corresponds to one asset category in the table. The ordering of asset categories in the balance sheet is RANDOM. You need to decide which weight to use for each asset category.

The conversion factor for the performance-related standby LC is 50% and that for the FX forward contract is 1%.

What is the bank's risk-based Common Equity Tier 1 capital ratio?

Select one:

a. 14.3%

b. 14.22%

c. 14.17%

d. 6.67%

e. None of the options.