For remaining questions, use the following bank balance sheet: ASSETS Vault Cash
ID: 2785538 • Letter: F
Question
For remaining questions, use the following bank balance sheet: ASSETS Vault Cash Federal Reserve Short-term Securities 150,000 Short-term CDs Long-term securities 500,000 Long-term CDs Short-term Loans Long-tern Loans Total Assets 22,000 Checkable Deposits 30,000 savings 175, 000 100, 000 750,000 20,000 Borrowings 125,000 422,000 1,249,000 Total Liabilities 1,095,000 Bank Equity #6 Is this bank solvent? #7 Assuming the required reserve ratio is 10%, how much, if any, excess reserves are there? #8 Suppose net profit after taxes is $29,877.25; calculate return on assets and return on equity. #9 Refer to #8. Calculate the equity multiplier. #10 Calculate the leverage ratio as discussed in the textbook, what is the relationship between the leverage ratio and the equity multiplier (explain mathematically). Page 3 of 3Explanation / Answer
Demand deposits=50000+175000=225000
Reserve required=10%*225000=22500
Excess reserves=30000-22500=7500
Return on assets=29877.25/124900=23.92%
Return on equity=29877.25/154000=19.40%
Equity multiplier=Total Assets/Total Equity=RoE/RoA=19.40/23.92=0.811037
Leverage ratio=Debt/Equity=(Total Assets-Equity)/Equity=Total Assets/Equity-1=Equity multiplier-1
Duration of a zero coupon bond is the same as its maturity, i.e., 30 years