QUESTION 2 Morehead Bank has the following financial statements. Answer Question

Question

QUESTION 2 Morehead Bank has the following financial statements. Answer Questions 2-13 Balance Sheet Income Statement Cash Securities Investment Net Loans Net Premises and Equipment $100 600 1,200 300 Interest Income Interest Expenses Non-Interest Income Non-Interest Expenses Provision for Loan Losses $400 150 50 100 60 Total Assets 2.200 Pre Tax Net Operating Income Securities Losses Taxes Net Income 40 45 Deposits Non-Deposit Borrowings Equity Capital $1,100 800 300 Total Liabilities and Equity $2.200 What is the bank's ROE 0 a 18.33% Ob. 12.22% Oc. 20.45% 067.3396 QUESTION 3 What is the bank's ROA? 0 a. 2.5% Ob. 12.2% c. 7.4% d. 18.3%

Explanation / Answer

ROE a. 18.33%

ROA a. 2.5%

Working:

Income Statement Interest Income 400 Interest expenses -150 Non-interest income 50 Non-interest expenses -100 Provision for loans -60 Pretax net operating income 140 Securities losses -40 Losses -45 Net Income 55 ROE = Net income / Equity          55 / 300 = 18.33% ROA = Net income / total Assets          = 55 / 2200 = 2.50%

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