If the value of this bank's investments decreases by $1,000, what is the approximate leverage ratio of this bank?
A) 9.60
B) 3.87
C) 8.60
D) 2.78
E) Not enough information is given.

Question

Quizplus · Accepted Answer

The leverage ratio is calculated by dividing the total assets by the total equity. In this case, the total assets are $10,000 and the total equity is $1,000. Therefore, the leverage ratio is 10,000 / 1,000 = 10. If the value of the bank's investments decreases by $1,000, the total assets will decrease to $9,000. Therefore, the new leverage ratio will be 9,000 / 1,000 = 9.

If the Value of This Bank's Investments Decreases by $1,000