A bank initially has $620 million in assets and $580 million in liabilities.The banks net worth (capital)is _____________ million.If the bank's assets decline by 5% and its liabilities do not change,its capital decreases by ____________ .

Question

Quizplus · Accepted Answer

The net worth (capital) of the bank can be calculated by subtracting its liabilities from its assets:
Net worth = Assets - Liabilities
Net worth = $620 million - $580 million
Net worth = $40 million

If the bank's assets decline by 5%, its new total assets will be:
New assets = $620 million - (5% of $620 million)
New assets = $620 million - $31 million
New assets = $589 million

The bank's capital after the decline in assets can be calculated as:
New net worth = New assets - Liabilities
New net worth = $589 million - $580 million
New net worth = $9 million

The decrease in capital is therefore:
Decrease in capital = $40 million - $9 million
Decrease in capital = $31 million

As a percentage of the original capital, this is:
Percentage decrease = (Decrease in capital / Original capital) x 100%
Percentage decrease = ($31 million / $40 million) x 100%
Percentage decrease = 77.5%

Therefore, the correct answer is C, $40 million and 77.5%.

A Bank Initially Has $620 Million in Assets and $580