Suppose a bank has $10 million in capital, $100 million in assets, and after-tax profit of $2 million? what is its return on assets? What is its return on equity?
What will be an ideal response?
Its return on assets is after-tax profit/bank assets or $2 million/$100 million = 2%. Its return on equity is after-tax profits/bank capital or $2 million/$10 million = 20%.
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