Consider a bank with the following balancesheet:Assets LiabilitiesRequired$10millionCheckable$120milliondepositsmillionBankcapitalreservesExcess $19million$16reservesLoans $75Assume that required reserves are 8%. Inorder to avoid insolvency, regulators decide toprovide the bank with $26 million in bankcapital. Assume that bad news aboutmortgages is featured in the local newspaper,causing a bank run. As a result, $25 million indeposits is withdrawn.AssetsmillionLiabilitiesmillionCheckable$95milliondepositsmillionBankсapitalRequired $8reservesExcess $22$10millionreserves$75million1) The bank now has a capital ratio ofand the bank isa) 9.5%; well-capitalizedb) 5.9%; well-capitalizedc) 9.5%; in a dire capital positiond) 5.9%; in a dire capital positionLoans 2) If the bank regulators decide that the bankneeds a capital ratio of 12% to prevent furtherruns on the bank, how much of an additionalcapital injection is required to reach the 12%capital ratio?a) $1 millionb) $2 millionc) $3 milliond) $4 million

Bank:- A bank is considered as the financial institution that have licenses to receive deposits and…

Consider a bank with the following balance sheet: Assets Liabilities Required$10 millionCheckable$120million deposits millionBank reserves Excess $19 million $16 reserves capital Loans $75 million Assume that required reserves are 8%. In order to avoid insolvency, regulators decide to provide the bank with $26 million in bank capital. Assume that bad news about mortgages is featured in the local newspaper, causing a bank run. As a result, $25 million in deposits is withdrawn. Assets Liabilities Required $8 millionCheckable$95million deposits millionBank reserves Excess $22 $10million reserves capital $75 million 1) The bank now has a capital ratio of and the bank is Loans a) 9.5%; well-capitalized b) 5.9%; well-capitalized c) 9.5%; in a dire capital position d) 5.9%; in a dire capital position

Consider a bank with the following balance sheet: Assets Liabilities Required$10 millionCheckable$120million deposits millionBank reserves Excess $19 million $16 reserves capital Loans $75 million Assume that required reserves are 8%. In order to avoid insolvency, regulators decide to provide the bank with $26 million in bank capital. Assume that bad news about mortgages is featured in the local newspaper, causing a bank run. As a result, $25 million in deposits is withdrawn. Assets Liabilities Required $8 millionCheckable$95million deposits millionBank reserves Excess $22 $10million reserves capital $75 million 1) The bank now has a capital ratio of and the bank is Loans a) 9.5%; well-capitalized b) 5.9%; well-capitalized c) 9.5%; in a dire capital position d) 5.9%; in a dire capital position

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Master Budget

A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.

Sales Budget and Selling

A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.

Question

Consider a bank with the following balance
sheet:
Assets Liabilities
Required$10
millionCheckable$120million
deposits
millionBank
capital
reserves
Excess $19
million
$16
reserves
Loans $75
Assume that required reserves are 8%. In
order to avoid insolvency, regulators decide to
provide the bank with $26 million in bank
capital. Assume that bad news about
mortgages is featured in the local newspaper,
causing a bank run. As a result, $25 million in
deposits is withdrawn.
Assets
million
Liabilities
millionCheckable$95million
deposits
millionBank
сapital
Required $8
reserves
Excess $22
$10million
reserves
$75
million
1) The bank now has a capital ratio of
and the bank is
a) 9.5%; well-capitalized
b) 5.9%; well-capitalized
c) 9.5%; in a dire capital position
d) 5.9%; in a dire capital position
Loans

2) If the bank regulators decide that the bank
needs a capital ratio of 12% to prevent further
runs on the bank, how much of an additional
capital injection is required to reach the 12%
capital ratio?
a) $1 million
b) $2 million
c) $3 million
d) $4 million

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