A bank has a profit margin of 5 percent,an asset utilization ratio of 11 percent,an equity multiplier of 12,and a retention ratio of 60 percent.What is this bank's ICGR?
A)6.60 percent
B)3.96 percent
C)7.20 percent
D)0.33 percent
E)None of the options is correct.

Question

Quizplus · Accepted Answer

The Internal Capital Growth Rate (ICGR) is calculated using the formula: ICGR = ROE * Retention Ratio. First, calculate the Return on Equity (ROE) using the DuPont Identity: ROE = Profit Margin * Asset Utilization * Equity Multiplier = 0.05 * 0.11 * 12 = 0.066 or 6.6%. Then, ICGR = 6.6% * 0.60 = 3.96%.

A Bank Has a Profit Margin of 5 Percent,an Asset