Use the following information for questions
A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 35%. Assets are expected to grow at 5%.
-What is the required ROA to support the growth in assets?
A) 0.62%
B) 0.65%
C) 0.68%
D) 0.72%
E) 0.75%

Question

Quizplus · Accepted Answer

To support a 5% growth in assets while maintaining a capital requirement of 8% and a dividend payout ratio of 35%, the bank needs to retain 65% of its earnings. The required ROA can be calculated using the formula: ROA = (Growth Rate / (1 - Dividend Payout Ratio)) * Capital Requirement. Substituting the values: ROA = (0.05 / 0.65) * 0.08 = 0.0615 or 0.62%.

Use the Following Information for Questions