Which of the following banks would likely have the highest return on equity?
A)high return on assets, high capital ratio
B)high return on assets, low capital ratio
C)low return on assets, low capital ratio
D)low return on assets, high capital ratio

Question

Quizplus · Accepted Answer

B) High return on assets (ROA) and a low capital ratio typically indicate a higher return on equity (ROE). This is because ROE is enhanced by financial leverage, which is higher when the capital ratio is lower, assuming the return on assets is positive and relatively high.

Which of the Following Banks Would Likely Have the Highest