As a result of loan write-offs, Bank A has to be liquidated by the regulators.The book value of the assets and liabilities of the bank is presented below (in millions of dollars).The market value of the loans has been estimated at $240 million. $$\begin{array} { | l | l | l | l | }
\hline \text { Loans (book value) } & \$ 340 & \text { Insured Deposits } & \$ 200 \
\hline & & \text { Uninsured Deposits } & \$ 100 \
\hline & & \text { Equity } & \$ 40 \
\hline
\end{array}$$ What is the current net worth (market value) of the bank?

Question

As a result of loan write-offs, Bank A has to be liquidated by the regulators.The book value of the assets and liabilities of the bank is presented below (in millions of dollars).The market value of the loans has been estimated at $240 million. $$\begin{array} { | l | l | l | l | } 
\hline \text { Loans (book value) } & \$ 340 & \text { Insured Deposits } & \$ 200 \
\hline & & \text { Uninsured Deposits } & \$ 100 \
\hline & & \text { Equity } & \$ 40 \
\hline
\end{array}$$ What is the current net worth (market value) of the bank?

Quizplus · Accepted Answer

The current net worth (market value) of the bank can be calculated by subtracting the total liabilities from the market value of the assets. The market value of the loans is $240 million. The total liabilities include both insured and uninsured deposits, which sum up to $200 million + $100 million = $300 million. Therefore, the current net worth is $240 million (assets) - $300 million (liabilities) = -$60 million.

As a Result of Loan Write-Offs, Bank a Has to Be