Suppose a bank has assets of $500 million and capital of $100 million. Its return on assets is -3%. What is its leverage ratio? What is its return on equity?

What will be an ideal response?


Its leverage ratio is bank capital/bank assets or $100 million/$500 million = 0.20. Its return on equity is its return on assets × bank assets/bank capital = -3% × (1/0,2 ) = -15%.

Economics

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Economics

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Indicate whether the statement is true or false

Economics