Based on the following information about Banks A and B, compute for each the ret

Question

Based on the following information about Banks A and B, compute for each the return on assets (ROA), return on equity (ROE), and leverage ratio a. Bank A has net profit after taxes of $1.8 million and the following balance sheet: Bank Balance Sheet in millions Assets Liabilities Reserves Loans Securities $5 $70 $45 Deposits Borrowin Bank Capital $100 $10 $10 Instructions: Enter your responses rounded to two decimal places The return on assets (ROA) for Bank A percent The return on equity (ROE) for Bank A: The leverage ratio for Bank A percent b. Bank B has net profit after taxes of $2 million and the following balance sheet: Bank Balance Sheet in millions Assets Liabilities Reserves Loans Securities $10 $55 $30 Deposits Borrowin Bank Capital $65 $15 $15 Instructions: Enter your responses rounded to two decimal places The return on assets (ROA) for Bank B percent The return on equity (ROE) for Bank B The leverage ratio for Bank B percent

Explanation / Answer

Bank A

return on Assets = 1.8/120 = 1.50%

return on equity = 1.8/10 = 18.00%

leverage ratio = 110/10 = 11

Bank B

return on Assets = 2/95 = 2.11%

return on equity = 2/15 = 13.33%

leverage ratio = 80/15 = 5.33

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