$\begin{array}{lccc}
\text { Securities (at par) } & \text { \$ 250 Deposits}& \$975 \
\text { Loans (at par)} & \text { \$ 760 Capital} & \$ 35
\end{array}$
Given that 25 percent of the loans have been identified as problem loans,and if historical cost accounting methods allow the bank to write down only 10 percent of the problem loans,what will be the book value of capital?

Question

$\begin{array}{lccc}
  \text { Securities (at par) } & \text { \$ 250  Deposits}& \$975  \
 \text { Loans (at par)} &    \text {  \$ 760  Capital} & \$ 35
\end{array}$
 Given that 25 percent of the loans have been identified as problem loans,and if historical cost accounting methods allow the bank to write down only 10 percent of the problem loans,what will be the book value of capital?

Quizplus · Accepted Answer

The problem loans amount to 25% of $760 million, which is $190 million. Writing down 10% of these problem loans means a reduction of $19 million. The initial capital is $35 million, so the book value of capital after the write-down is $35 million - $19 million = $16 million.

Given That 25 Percent of the Loans Have Been Identified