Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rates next year would lead to the bank's return on equity being reduced to zero. Assume that the bank is subject to a tax rate of 30%. ABC have a debt equity ratio of 0.80 and a Return on Assets of 8.9%. Also, if their Total Equity is valued at $590m then: i) What is their Equity Multiplier? ii) Return on Equity? iii) Using the abbreviated Dupont identity, what is their Net Income?
Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rates next year would lead to the bank's return on equity being reduced to zero. Assume that the bank is subject to a tax rate of 30%. ABC have a debt equity ratio of 0.80 and a Return on Assets of 8.9%. Also, if their Total Equity is valued at $590m then: i) What is their Equity Multiplier? ii) Return on Equity? iii) Using the abbreviated Dupont identity, what is their Net Income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
None
Transcribed Image Text:Suppose that a bank has $10 billion of one-year loans and
$30 billion of five-year loans. These are financed by $35
billion of one-year deposits and $5 billion of five-year
deposits. The bank has equity totaling $2 billion and its
return on equity is currently 12%. Estimate what change in
interest rates next year would lead to the bank's return on
equity being reduced to zero. Assume that the bank is
subject to a tax rate of 30%.
ABC have a debt equity ratio of 0.80 and a Return
on Assets of 8.9%. Also, if their Total Equity is
valued at $590m then:
i) What is their Equity Multiplier?
ii) Return on Equity?
iii) Using the abbreviated Dupont identity, what is
their Net Income?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education