A. What is the return on equity? B. What is net interest margin? C.What is the e

Question

A. What is the return on equity?

B. What is net interest margin?

C.What is the earnings base?

D.What is the burden ratio?

E.What is the efficiency ratio?

Assets Liabilities and Equity Cash and Due from Banks Investments Federal Funds Loans Premises Average Total Assets 55.00 310.00 14.00 350.00 90.00 819.00 Demand Deposits Time Deposits Federal Funds Equity Average Total Liabs & Eqty 105.00 300.00 302.00 112.00 819.00 Income Statement Interest Income Interest Expense Non-interest income non-interest expense Net income 102.0 73.0 5.0 22.5 11.5

Explanation / Answer

A) Return on equity = PAT/Shareholder's funds

=11.5/112

=10.27%

B)Net interest margin = Interest income-interst expense/ Average earning asset

=102-73/350

(Here it is assume that investment shown in asset will yield non interest income)

29/350

=8.29%

C) earnings base shows how many asset are earning asset. Earning asset are asset that generates revenue. For eg Investment will yield dividend thus investment is earning asset while car is an asset but it will not generate return hence it is non generating asset. Earning base = Earning asset/Total asset

D) Burden ratio = Non-interest expense- Non interest income/Average total asset

=22.5-5 / 819

2.137%

E) Efficieny ratio = Cost(excluding interest expense)/Total revenue

=22.5/102+5

=22.5/107

=21.03%

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