Question

Preview File Edit View Go Tools Window M 14%D Mon 10:55 AM QE Help Problem Set 2.pdf (page 1 of 2) - Edited @ Q Search 3, Megalopolis Bank has the following balance sheet and income statement. S $ Assets Cash and due from banks Investment securities Repurchase agreements Loans Fixed assets Other assets Balance Sheet (in millions) Liabilities and Equity 10,300 Demand deposits 36,000 NOW accounts 55,000 Retail CDs 103,000 Debentures 28,000 Total liabilities 5,300 Common stock Paid-in capital Retained earnings $ 237,600 Total liabilities and equity 32,000 102,000 41,000 32,000 207,000 12,000 4,000 14,600 237,600 Total assets $ $ Income Statement Interest on fees and loans Interest on investment securities Interest on repurchase agreements Interest on deposits in banks Total interest income Interest on deposits Interest on debentures Total interest expense Net interest income Provision for loan losses $ 10,300 5,300 7,300 2,300 25,200 10,300 3,300 13,600 11,600 3.000 $ S MIT

Answer 1

(a) Return on Equity » It expresses the net income earned on the equity employed in the business, RoE= - Net Income Total Equity Total Equity a common Stock + paid in capital t Retained 1 Earnings =$ 12,000 + $4,000 + $ 14,600] million = $30,600 million Net Income = $ 6,100 million So, ROE = $6,100 million $30, 600 million = 0.199346 Or 19.93% (6) Return on Asset a) It expresses net income as - a proportion of total assets employed that means how much return is received on total assets. ROA = Net Income Total Assets

z $6,100 million $ 237,600 million z 0.02567 or 2.57% (C) Asset utilization - Asset utilization is a batio that tells us how much total income is generated by total asset employed, Asset utilizatio = Total income - Total Asset Total Income Total interest income + Non interest Income = ($ 25,200 + $ 3,300] million = $ 28,500 million so, Asset utilizations $ 28,500 million $ 237,600 million 2 0.1199 og 11.9918 d) Equity Multiplier =) Equity multiplier measures - the portion of assets that are financed by equity. Equity Multiplier = Total Asset Total Equity

z $ 237,600 million $30,600 million 7.76 times (e) Profit Margin ratio - Profit margin ratio is - a ratio of net income to the total income which shows how much percent of total income is the profit, Profit Margin Ratio= Net Income Total Income a $ 6,100 million $ 28,500 million = 0.214035 or 21.40 / # Interest Expense Ratio ) It shows how much percent of total income is the interest expense, = = Interest Expense Ratio = Total interest Expense . Total income $ 13,600 million $ 28,500 million = = 0.47719 Os 4 7.73%.

(g) Provision for loan loss Ratio & It expresses - how much percent of total income is provision for loan loss. - Provision for loan loss Total income $3000 million $ 28,500 million > 0.105263 og 10.53. (6) Non Interest Expense Ratio =) = Non- Interest Expense Total Income $2,300 million $28,500 million = 0.080701 or 8.07 e Tax ratio = Taxes - Total income = $ 3,500 million $28,500 million > 0.122807 on 12.28 %.