Blue Ridge Bank has a PM of 12%, an interest income to total assets ratio of 6.00%, and a noninterest income to assets ratio of 1.50%. Blue Ridge also has $9 in assets per dollar in equity capital. Blue Ridge's ROE is

Question

Quizplus · Accepted Answer

We can use the DuPont analysis to find out the ROE of Blue Ridge Bank.
ROE = PM x Asset Turnover x Equity Multiplier
Asset Turnover = Total Assets / Equity Capital = 9
Equity Multiplier = Total Assets / Total Equity = 9
PM = 12%
ROE = 0.12 x (Total Revenue / Total Assets) x (Total Assets / Total Equity)
ROE = 0.12 x (Interest Income / Total Assets + Noninterest Income / Total Assets) x (Total Assets / Total Equity)
ROE = 0.12 x (0.06 + 0.015) x 9 = 8.10%
Therefore, the answer is (C).

Blue Ridge Bank Has a PM of 12%, an Interest