A bank has total assets of $620 million and $68.2 million in equity. The managers of the bank realize that $18.6 million of its $372 million loan portfolio will not be repaid. After the bank charges off these unexpected bad loans the bank's equity to asset ratio will be __________________.

Question

Quizplus · Accepted Answer

The equity to asset ratio can be calculated as (equity / total assets). After the charge off of $18.6 million, the bank's total assets will be ($620 million - $18.6 million) = $601.4 million and equity will be ($68.2 million - $18.6 million) = $49.6 million. Thus, the equity to asset ratio will be ($49.6 million / $601.4 million) = 8.25%, which is option D.

A Bank Has Total Assets of $620 Million and $68