The net worth of a bank is the difference between the
A)value of retained earnings and the provision for loan losses.
B)market value of assets and the market value of liabilities.
C)book value of assets and book value of liabilities.
D)rate-sensitive assets and rate-sensitive liabilities.

Question

Quizplus · Accepted Answer

Net worth is defined as the market value of assets minus the market value of liabilities. This is because assets represent what the bank owns, while liabilities represent what the bank owes to others. The difference between the two is the bank's net worth, which is also known as equity or shareholder's equity. This is the amount that would remain if all the bank's assets were sold and all its liabilities were paid off. Retained earnings and provision for loan losses are important components of a bank's financial statements, but they are not used to calculate net worth. Book value of assets and liabilities also do not represent market values and therefore are not an accurate representation of a bank's net worth. Similarly, rate-sensitive assets and liabilities refer to the bank's interest rate risk, and they do not have a direct impact on the calculation of net worth.

The Net Worth of a Bank Is the Difference Between