A bank has a net profit margin of 5.25 percent.It has an asset utilization ratio of 45 percent and has an equity multiplier of 12.It retains 40 percent of its earnings each year.What is this bank's internal capital growth rate?
A)28.35 percent
B)2.36 percent
C)11.34 percent
D)4.80 percent
E)None of the options is correct.

Question

Quizplus · Accepted Answer

The internal capital growth rate (g) can be calculated using the formula:

g = b * ROE

where b is the retention rate and ROE is the return on equity.

ROE can be calculated using the DuPont model:

ROE = Net Profit Margin * Asset Utilization Ratio * Equity Multiplier

Substituting the given values:

ROE = 0.0525 * 0.45 * 12 = 2.835

b = 0.4

Therefore,

g = 0.4 * 2.835 = 1.134 = 11.34%

So, the correct answer is C.

A Bank Has a Net Profit Margin of 5