If a bank's ratio of assets to capital is 25 and it's return on assets is -5%,what is its return on equity?

Name: If a bank's ratio of assets to capital is 25 and it's return on assets is -5%,what is its return on equity?
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Question

Quizplus · Accepted Answer

Return on Equity (ROE) = Return on Assets (ROA) * Leverage or Assets to Equity Ratio
Given, Assets to Capital Ratio = 25
So, Assets to Equity Ratio = 25/(1-1/25) = 25/24
ROA = -5%
Therefore, ROE = -5% * 25/24 = -125%.
Hence, the answer is option D.

If a Bank's Ratio of Assets to Capital Is 25