Question

Megalopolis Bank has the following balance sheet and income statement. Balance Sheet (in millions) Assets Liabilities...

Megalopolis Bank has the following balance sheet and income statement.

Balance Sheet (in millions)
Assets Liabilities and Equity
Cash and due from banks $ 9,800 Demand deposits $ 27,000
Investment securities 31,000 NOW accounts 97,000
Repurchase agreements 50,000 Retail CDs 36,000
Loans 98,000 Debentures 27,000
Fixed assets 23,000 Total liabilities $ 187,000
Other assets 4,800 Common stock 12,000
Paid-in capital 4,000
Retained earnings 13,600
Total assets $ 216,600 Total liabilities and equity $ 216,600
Income Statement
Interest on fees and loans $ 9,800
Interest on investment securities 4,800
Interest on repurchase agreements 6,800
Interest on deposits in banks 1,800
Total interest income $ 23,200
Interest on deposits $ 9,800
Interest on debentures 2,800
Total interest expense $ 12,600
Net interest income $ 10,600
Provision for loan losses 2,800
Noninterest income 2,800
Noninterest expenses 1,800
Income before taxes $ 8,800
Taxes 3,500
Net income $ 5,300


For Megalopolis, calculate (Round your answers to 2 decimal places. (e.g., 32.16)):

a.Return on equity%

b.Return on assets%

c.Asset utilization%

d.Equity multiplierX

e.Profit margin%

f.Interest expense ratio%

g.Provision for loan loss ratio%

h.Noninterest expense ratio%

i.Tax ratio%

Homework Answers

Answer #1

Answer to Part a.

Return on Equity = Net Income / Total Stockholders’ Equity * 100

Total Stockholders’ Equity = Common Stock + Paid-in Capital + Retained Earnings
Total Stockholders’ Equity = $12,000 + $4,000 + $13,600
Total Stockholders’ Equity = $29,600

Return on Equity = $5,300 / $29,600 * 100
Return on Equity = 17.91%

Answer to Part b.

Return on Assets = Net Income / Total Assets * 100
Return on Assets = $5,300 / $216,600 * 100
Return on Assets = 2.45%

Answer to Part c.

Asset Utilization = (Total Interest Income + Non Interest Income) / Total Assets * 100
Asset Utilization = ($23,200 + $2,800) / $216,600 * 100
Asset Utilization = 12.00%

Answer to Part d.

Equity Multiplier = Total Assets / Total Stockholders’ Equity
Equity Multiplier = $216,600 / $29,600
Equity Multiplier = 7.32X

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