3. Contingent Bank has the following balance sheet in market value terms (in mil

Question

3. Contingent Bank has the following balance sheet in market value terms (in millions of dollars). Assets Liabilities Cash $20 Deposits $220 Mortgages 220 Equity 20 Total assets $240 Total liabilities and equity $240 In addition, the bank has contingent assets with $100 million market value and contingent liabilities with $80 million market value. What is the true stockholder net worth? What does the term contingent mean? 3. Contingent Bank has the following balance sheet in market value terms (in millions of dollars). Assets Liabilities Cash $20 Deposits $220 Mortgages 220 Equity 20 Total assets $240 Total liabilities and equity $240 In addition, the bank has contingent assets with $100 million market value and contingent liabilities with $80 million market value. What is the true stockholder net worth? What does the term contingent mean? 3. Contingent Bank has the following balance sheet in market value terms (in millions of dollars). Assets Liabilities Cash $20 Deposits $220 Mortgages 220 Equity 20 Total assets $240 Total liabilities and equity $240 In addition, the bank has contingent assets with $100 million market value and contingent liabilities with $80 million market value. What is the true stockholder net worth? What does the term contingent mean?

Explanation / Answer

First of all contingent means subject to chance. Hence contingent liabilities and assets are those which can arise in the future but we cannot add it to the balance sheet because there is uncertainty involved.

If we assume that these assets and liabilities will come up,

New assets = 240 + 100 = $340

New liabilities = 220 + 80 = $300

Hence stockholder net worth = Assets - Liabilities = 340 - 300 = $40

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