Banks G and H are the same size and have similar operations. Bank G holds the minimum level of capital and Bank H holds a higher level of capital. Bank G's return on equity is probably ____ volatile than that of Bank H. Bank G's beta is probably ____ than that of Bank H.
A)less; lower
B)less; higher
C)more; higher
D)more; lower

Question

Quizplus · Accepted Answer

Bank G, with a minimum level of capital, is likely to have a more volatile return on equity due to higher leverage. This higher leverage also suggests a higher beta, indicating greater sensitivity to market movements compared to Bank H, which holds more capital.

Banks G and H Are the Same Size and Have