Question

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%

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