Let’s assume that you have been asked to calculate risk-based capital ratios for
ID: 2650536 • Letter: L
Question
Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts.
Cash 7 million
Government Securities: 9 million
Mortgage loans 25 million
Other loans 55 million
Fixed assets 8 million
Intangile assets 5 million
Loan-loss reserves 4 million
Owners’ equity 6 million
Trust-preferred securities 3 million
Cash assets and government securities are not considered risky.
Loans secured by real estate have a 50% weighting factor.
All other loans have a 100 % weighting factor in term of riskiness.
Calculate the equity capital ratio.
Calculate the Tier 1 Ratio using risk-adjusted assets.
Calculate the Total Capital (Tier 1 and Tier 2) Ratio using risk-based assets.
Explanation / Answer
Answer: Calculation of the equity capital ratio:
Equity Capital Ratio = Owners' equity / Total
Equity Capital Ration = $6 million / $122 million
Equity Capital Ratio = 0.049180
Answer:
Risk-adjusted assets = $7x0.0 + $9x0.0 + $25x0.5 + $55x1.0 = $67.5
Tier I capital ratio = ($6 + $3)/$67.5= 0.1333 or 13.33 percent.
Answer:
The total risk-based capital ratio = ($6+$3+$4)/$67.5= 0.19259 or 19.26 percent.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.